Auto Insurance For Teens: What Coverage Is Essential?

Auto insurance for 18-year-olds can be expensive, with rates varying based on factors such as gender, location, and driving experience. On average, 18-year-old drivers pay $485 per month for full coverage and $202 per month for minimum coverage. Staying on a parent's insurance policy can significantly reduce costs, but independent 18-year-olds may need their own policy. To get the best insurance, it's important to understand your needs, compare quotes from multiple companies, and take advantage of discounts.

Full coverage vs. minimum coverage

As an 18-year-old, you may be looking to get your own auto insurance policy or be added to your parents' policy. Regardless, understanding the difference between full coverage and minimum coverage is important.

Full coverage refers to adding comprehensive and collision coverage to your policy, which covers damage to your own vehicle. Minimum coverage, on the other hand, only includes your state's minimum required liability coverage.

The average cost of full coverage car insurance for 18-year-olds is $464 to $485 per month. In contrast, minimum coverage costs an average of $1,786 to $202 per year, or around $202 per month.

While full coverage is more expensive, it offers more comprehensive protection in the event of an accident. If you have a loan or lease, you are typically required to purchase full coverage.

When deciding between full coverage and minimum coverage, consider your individual needs and financial situation. If you have an older car or one worth less than $5,000, minimum coverage may be sufficient. However, if you want more extensive protection, full coverage is the way to go.

It's worth noting that as an 18-year-old, you are considered a high-risk driver due to your lack of driving experience. This contributes to the higher insurance costs. As you gain more experience and improve your driving record, your insurance rates should decrease over time.

Liability-only insurance

As an 18-year-old, you may be buying your own car insurance policy for the first time. While it's not mandatory in all states, liability insurance is a standard feature of most vehicle insurance policies. It's also required by most states to drive your vehicle legally. So, if you're an 18-year-old driver, here's what you need to know about liability-only insurance.

It is important to note that liability-only insurance does not cover any damages to your own property or any injuries you sustain in an accident. To protect yourself financially in these cases, you would need to purchase additional coverages, such as personal injury protection or uninsured/underinsured motorist coverages.

The amount of liability coverage you need depends on your specific circumstances. It is generally recommended to choose a liability coverage limit that matches or exceeds your total net worth to ensure your assets are well-protected. The coverage limits are usually expressed as three numbers, such as 25/50/25, indicating the maximum coverage for bodily injury per person, bodily injury per accident, and property damage per accident, respectively.

The cost of liability-only insurance can vary depending on various factors, including your age, gender, driving record, and the insurance company you choose. For 18-year-old drivers, the average cost of minimum coverage is around $202 per month, but it can range from $145 to $887 per month depending on your state.

Gender-based pricing

Auto insurance companies have traditionally used gender as a factor when setting premiums, with men typically paying more than women, particularly in the 16-24 age range. However, this practice has been deemed controversial and discriminatory, and several US states have banned it.

The Arguments for Gender-Based Pricing

Insurance companies argue that gender is an actuarially sound criterion for establishing premiums. Statistics show that men are more likely to be involved in accidents, speeding, and DUI convictions, and are less likely to wear seatbelts. As such, they are considered higher-risk clients.

The Arguments Against Gender-Based Pricing

Consumer advocates and politicians believe that insurance premiums should be based on factors policyholders can control, such as their behaviour, rather than factors beyond their control, like gender. They argue that gender-based pricing is discriminatory and inconsistent, with some women drivers even paying more than men in certain states.

States That Have Banned Gender-Based Pricing

Several US states have banned the use of gender in determining auto insurance rates, including California, Michigan, Hawaii, Massachusetts, Montana, North Carolina, and Pennsylvania. In these states, men and women should pay the same price for auto insurance coverage, all else being equal.

The Impact of Banning Gender-Based Pricing

In states that have banned gender-based pricing, insurers may increase rates for those who previously paid lower rates. For example, in Montana, women started paying up to 30% more for their insurance premiums after the ban was lifted in 2021.

Alternatives to Gender-Based Pricing

In the absence of gender-based pricing, insurers will focus on other risk factors like driving record and years of experience to set premiums. They may also give more weight to other factors like occupation, which are often just proxies for gender.

The Bottom Line

The bottom line is that gender is not a reliable and consistent predictor of risk in auto underwriting. While young women may benefit from lower premiums due to their lower-risk status, this advantage disappears around the age of 25, and the discrepancy even moves in favour of men for older age groups.

Discounts for good students

As an 18-year-old, you can save a significant amount of money on your auto insurance by taking advantage of good student discounts. Most insurance companies offer good student discounts if you can maintain a B average or a 3.0 GPA. Some companies also accept other forms of validation, such as ranking in the top 20% of your class or scoring in the top 20% on national standardized tests like the ACT, SAT, or PSAT.

The amount you can save with a good student discount varies depending on the insurance company and your location. On average, good students can save between 4% and 20% on their car insurance premiums. Some companies, like State Farm, offer discounts of up to 25%. For example, an 18-year-old male with full coverage could save several hundred dollars a year with a good student discount from Nationwide, which offers an average discount of 20%.

In addition to good student discounts, many insurance companies offer other discounts for students, such as away-at-school discounts for students who don't have a car on campus and driver's training discounts for completing a defensive driving course. You may also be able to save money by staying on your parents' insurance policy instead of purchasing your own.

• GEICO: GEICO offers a good student discount for full-time students who maintain a "B" average or better. They also offer other discounts for alumni associations, colleges, universities, and student organizations.
• State Farm: State Farm offers good student discounts of up to 25%, and their rates are among the cheapest for students even before the discount.
• Allstate: Allstate offers the largest good student discount at around 20% off, but their rates are more expensive than average, so you may want to compare quotes from other insurers.
• Nationwide: Nationwide offers a good student discount for drivers ages 16 to 24 who are full-time high school or college students and maintain a minimum B average. Their average discount is 20%.
• Progressive: Progressive offers a good student discount for full-time students who maintain a "B" average or better, with an average discount of 8%.

Cheapest insurance companies

When it comes to auto insurance for 18-year-olds, it's important to find a balance between adequate coverage and affordable rates. Here's a detailed overview of some of the cheapest insurance companies catering to young drivers:

USAA

USAA is consistently ranked as one of the most affordable options for 18-year-old drivers, especially when it comes to adding a teenager to an existing parent's policy. USAA is known for offering competitive rates, and it's a great choice for military families or those with a military affiliation. Their average rates are about 29% lower than the typical cost of insurance for this age group.

Erie Insurance

Erie Insurance is another excellent choice for cheap car insurance, especially for those seeking minimum coverage. For 18-year-olds, their average rates for minimum coverage are around $108 per month or $1,294 per year. They are a regional provider, so they may not be available in every state, but they are worth considering if they operate in your area.

Geico

Geico is known for offering affordable rates for young drivers, with their average rates being about 22% cheaper than the national average for 18-year-olds. They also provide various discounts, such as driver education and good student discounts, which can further reduce the cost of insurance for teens.

State Farm

State Farm is a widely recognized insurance company that offers competitive rates for 18-year-olds. Their Steer Clear® program, an educational course for young drivers, provides discounts upon completion. Additionally, State Farm offers a good student discount of up to 25% until drivers turn 25. Their average rates are close to the national average.

Travelers

Travelers is a top-rated insurance provider that offers the cheapest full-coverage insurance for 18-year-olds, with rates approximately 33% cheaper than the national average. They also have a range of discounts available, including those for good students, driver's education course completion, and driving an electric or hybrid vehicle.

While these companies tend to offer competitive rates for young drivers, it's always a good idea to compare quotes from multiple providers, as rates can vary based on individual circumstances and location. Additionally, taking advantage of available discounts and maintaining a clean driving record can help 18-year-olds secure the best rates possible.

Frequently asked questions