Auto Insurance: New Drivers Face Higher Premiums

Auto insurance is more expensive for new drivers because insurance companies view them as riskier to insure due to their lack of driving experience. New drivers are more likely to be involved in accidents and are statistically more prone to distracted and impaired driving. The higher premium allows insurers to mitigate their risk. The cost of auto insurance for new drivers can range from $150 to $200 or more per month. However, there are ways for new drivers to save on their insurance, such as comparing quotes from different companies, taking advantage of discounts, and staying on their parents' insurance policy.

New drivers are considered high-risk

Insurance companies consider new drivers to be high-risk due to their lack of driving experience. This means that new drivers are more likely to be involved in accidents and are therefore more expensive to insure. The risk is further elevated for teenage boys, who have a much higher risk of auto accidents than adolescent girls. As a result, they pay much higher auto insurance rates.

According to the Insurance Information Institute, insurance providers use the following factors to calculate a new driver's auto insurance premium:

• A history of paying auto insurance.
• The make, model, and year of the vehicle.
• The driver's history.

These factors help insurance providers determine the risk associated with insuring a new driver, allowing them to charge different rates based on their assessment. If a parent adds their child to their policy, they will likely pay more each month due to the child's age and lack of driving experience.

Although new drivers are considered high-risk and face higher insurance premiums, there are several strategies they can employ to reduce their auto insurance costs:

• Shop around for quotes: New drivers should obtain quotes from multiple insurance companies and compare rates. By evaluating different options, they can find the most competitive price for their needs.
• Stay on their parents' policy: If possible, new drivers, especially teens and young adults, should consider staying on their parents' auto insurance policy. This can result in significant savings, as the parents' driving history, insurance claims history, and credit score can positively influence the premium.
• Choose the right vehicle: The type of vehicle driven impacts insurance rates. Luxury and sports cars tend to be more expensive to insure due to higher repair costs and the increased risk of accidents. Opting for an affordable, safe, and slightly older vehicle can help lower insurance premiums.
• Improve your credit score: In states where credit scores are permitted to influence insurance rates, building a good credit score can positively impact auto insurance costs. A strong credit history demonstrates financial responsibility and can lead to lower premiums.
• Take advantage of discounts: Insurance companies offer various discounts that new drivers can leverage to reduce their premiums. These include good student discounts, safe driver discounts, and discounts for completing defensive driving courses. Additionally, bundling insurance policies, such as homeowners' or renters' insurance with auto insurance, can lead to significant savings.

Lack of driving experience

Auto insurance is more expensive for new drivers due to their lack of driving experience. Insurance companies consider new drivers to be high-risk because they are more likely to be involved in accidents and file claims. This perception of risk is further heightened by statistics, which show that young and new drivers have the second-highest fatality rate among all drivers. As a result, insurance companies charge higher rates to new drivers to compensate for the increased likelihood of claims.

The lack of a proven driving record also contributes to higher insurance costs for new drivers. Insurance companies rely on driving records to assess driving behaviour and determine rates. Without a driving history, insurers cannot gauge how a new driver will respond to different situations on the road. This uncertainty is factored into the insurance rates, resulting in higher premiums for new drivers.

Additionally, new drivers are more likely to panic or overcorrect when faced with unusual circumstances while driving. This tendency further increases the risk of accidents and claims, leading to higher insurance rates. The lack of driving experience also means that new drivers have not had the opportunity to establish a good driving record, which can help lower insurance costs over time.

To mitigate the higher costs associated with lack of driving experience, new drivers can take several steps. Comparing insurance rates from multiple companies and taking advantage of various discounts can help reduce premiums. Staying on a parent's insurance policy, if possible, can also result in significant savings for new drivers. Enrolling in safe driver programs and improving one's credit score are other effective strategies to lower insurance costs.

Higher insurance rates for young males

Young males are considered high-risk drivers by insurance companies due to their lack of driving experience and tendency to engage in reckless and distracted driving. This perception results in higher insurance rates for young males compared to their female counterparts.

Higher Accident Risk

Insurers consider young drivers, especially males, to be more likely to be involved in accidents due to their inexperience and propensity for risky behaviour. This perception is supported by statistics, as teens and young adults have the second-highest fatality rate among all drivers. In 2019, over 5,600 young people under the age of 25 died in car accidents, a higher number than the 4,958 drivers between the ages of 45 and 54.

Unproven Driving Record

Young drivers, particularly males, often have little to no driving history, making it challenging for insurers to assess their driving behaviour accurately. Inexperience can lead to panic or overcorrection in unusual situations, increasing the risk of accidents and insurance claims.

Distracted Driving

Young drivers, especially males, are more likely to engage in distracted driving behaviours such as texting, sending emails, and talking on the phone while operating a vehicle. Distracted driving increases the risk of accidents, with the Centres for Disease Control and Prevention (CDC) attributing 9% of fatal accidents involving young drivers between 15 and 20 years old to distracted driving.

Reckless Behaviour

Teen drivers, especially males, tend to exhibit more reckless behaviour behind the wheel, resulting in a higher number of accidents and insurance claims. However, as young drivers enter their twenties, the likelihood of risk-taking behaviour decreases, leading to lower insurance rates.

Lower Credit Scores

Young males are less likely to have established credit histories, which insurers consider a risk factor. Lower credit scores are associated with a higher probability of filing insurance claims, leading to higher insurance rates for this demographic.

Financial Risk to Insurance Companies

Overall, young male drivers pose a financial risk to insurance companies due to their lack of driving experience, higher accident rates, and increased likelihood of distracted and reckless driving. As a result, they often pay significantly higher insurance premiums to compensate for this risk.

Lower credit scores

A lower credit score can significantly impact the cost of auto insurance for new drivers. In most states, insurance companies use credit scores as a factor in determining insurance rates. A lower credit score is associated with a higher risk of filing insurance claims, leading to higher premiums for individuals with poor credit. On average, drivers with poor credit pay up to 88% more for full coverage auto insurance than those with good credit. This difference in rates can amount to an additional $144 per month or $1,728 per year.

The impact of credit score on insurance rates varies across states. Four states, including California, Hawaii, Massachusetts, and Michigan, prohibit or severely restrict the use of credit scores in determining insurance rates. In these states, insurance companies base rates primarily on driving records, location, and other factors.

It's important to note that having no credit history can also result in higher insurance rates, as insurance companies often view this as equivalent to having poor credit. However, some states, such as New Jersey and Rhode Island, prohibit insurance companies from charging higher rates due to a lack of credit history.

To improve their credit score, individuals can take several steps, including paying bills on time, minimizing hard credit inquiries, regularly monitoring their score, maintaining old lines of credit, and managing their credit utilization ratio.

Higher insurance rates for teens

Car insurance rates are higher for teens and young drivers due to their lack of driving experience. Insurance companies consider young drivers to be high-risk and more likely to be involved in accidents, leading to higher insurance premiums. The rates can vary based on age, gender, driving history, and other factors. Here are some key points to understand and mitigate the impact of higher insurance rates for teens:

Factors Affecting Insurance Rates for Teens

• Age and Gender: Teenage drivers, especially boys, face higher insurance rates due to their higher risk of auto accidents. A 17-year-old male typically pays significantly more than a 25-year-old male for the same policy. Girls also experience higher rates than older women, but the difference is less pronounced.
• Driving History: A clean driving record is crucial for lowering insurance rates. Accidents, speeding tickets, and other infractions can increase premiums substantially.
• Vehicle Choice: The type of vehicle driven impacts insurance rates. Luxury, sports, and high-value vehicles often cost more to insure due to higher repair costs and the potential for more severe accidents.
• Coverage Options: Full coverage insurance, which includes collision and comprehensive coverage, is more expensive than minimum liability coverage. Teens may need full coverage if their car is financed or leased.
• Parental Influence: Staying on a parent's insurance policy can significantly reduce insurance costs for teens. This leverages the parent's driving history and credit score to secure lower rates.

Strategies for Reducing Insurance Costs for Teens

• Shop Around: Compare quotes from multiple insurance companies, as rates can vary significantly. Online insurers, local agents, and large companies with extensive advertising campaigns may all offer different rates and discounts.
• Safe Driver Programs: Enrolling in safe driver programs, often managed through smartphone apps, can provide discounts for avoiding risky behaviors like speeding and hard braking.
• Student Discounts: Many insurance companies offer good student discounts for full-time students with good grades. Maintaining a "B" average or higher can lead to substantial savings.
• Defensive Driving Courses: Completing a defensive driving course can result in lower insurance rates, as it demonstrates a commitment to safe driving practices.
• Credit Score Improvement: Building a good credit score can positively impact insurance rates, even for teens. Paying bills on time and establishing a solid credit history can lead to lower premiums over time.
• Bundling Policies: If teens have their own home or renter's insurance policy, bundling it with their auto insurance can result in a multiple policy discount.

Frequently asked questions