Newly minted adults seeking to embark on financial independence should choose a path that doesn’t include their own auto insurance policy.
That’s the consensus of industry insiders, who concur with an analyst’s findings that 18-year-olds going it alone pay an average of 18 percent more than they would if they stayed on their parents’ policy.
The increase can vary widely from state to state, a study by InsuranceQuotes.com shows. The comparison-shopping website’s analysts found that on average, 18-year-olds in Washington pay 28 percent more for their own policy.
In Oregon, the average price hike is 47 percent, one of the highest in the country, according to InsuranceQuotes.com.
For 18-year-old Mikaela Wrenn of Yakima, the cost comparison is on the horizon. She is covered under her grandparents’ policy but plans to re-evaluate her situation soon.
A handful of local auto insurance agents interviewed for this story said they advise teen drivers to remain on their parents’ or guardians’ policies because doing so maximizes the number of discounts teens are eligible to receive.
Furthermore, the agents said they could not think of any persuasive financial incentives for teen drivers to have their own policies.
“The problem is that oftentimes the 18-year-old is driving mom and dad’s car. The vehicle is in their (parents’) name,” said Gary Paulson, owner of Mid-Columbia Insurance in Yakima. “Mom and dad, thinking they’re saving money, buy a stripped-down policy, and then the kid hits somebody. And a lawyer sues them, and they lose the house.
“My experience has been that it’s always better for the kid to stay on the parents’ policy.”
Paulson said it makes far greater sense to reduce coverage amounts for the more experienced driver and increase them for the teen, who has the greater likelihood of crashing.
InsuranceQuotes.com’s analysts acknowledged that parents’ premiums increase considerably when they add a teen to their policy. In Washington, covering an 18-year-old driver through the parents’ insurance will boost their bill by 80 percent on average, InsuranceQuotes.com found.
Nationwide, “parents with an 18-year-old on their policy pay an average of 77 percent more than they would without the teen,” InsuranceQuotes.com senior analyst Laura Adams said.
But the alternative is usually worse. And discounts, available to teens as well as parents, can mitigate much of the sting.
“Particularly if the parents have a multipolicy discount, they’re going to blow away anything the kid could get on his own,” said Dick Elliott of Elliott Insurance in Yakima.
State Farm agent Eric Silvers seconded that statement.
“We don’t just set a price,” Silvers said. “There are so many different factors in there. We’re into finding discounts.”
Most states hew to the findings in the analysis by InsuranceQuotes.com, although there are a handful of outliers.
Hawaii doesn’t allow auto insurers to account for age or experience in pricing policies. The higher cost for insuring 18-year-olds individually in Alaska, Florida and Illinois averaged 7 percent, or 11 percentage points lower than the national average.
As expected, the discrepancy lessens over time as the driver ages, averaging 4 percent at age 24. Nevertheless, some states maintain a sizeable price gap even for drivers in their mid-20s.
The data were compiled from the largest carriers in each state; full results can be seen at www.insurancequotes.com/auto/should-teens-get-own-auto-insurance-policy-81015.
So how can parents foster financial self-sufficiency in teen drivers without busting their budgets? One way, Adams said, is to ask teens to cover all or part of their share of the more expensive premium.
State Farm regional spokeswoman Angela Thorpe said her company’s agents like to have a heart-to-heart dialogue with teens about the financial responsibility their parents incur by insuring them.
She said parents can do likewise.
“The important thing is to plan ahead,” Thorpe said. “You need to have those conversations upfront.”
State Farm’s informational page for teen drivers can be accessed at teendriving.statefarm.com.
