Buying car insurance for the first time is something that just about everyone will experience as a young adult. While still a teenager, most kids can get on their parents’ auto insurance policy and do need to worry about carrying their own insurance. Buying an insurance policy that is all yours is an important rite of passage that comes with having your own vehicle. But you will be considered a much higher risk by yourself and will have to pay a hefty premium. This is – quite literally – the price you pay for being a young adult.
So, why do you have to pay more for car insurance? There are actually a few reasons, and they make sense. However, there are also some tips included here that can help you save money. Before we get to that, let’s take a look at why young adults pay so much for car insurance in the first place.
The Numbers Don’t Lie
First, you should be aware that statistical analysis shows that drivers who are under the age of 25 are at a much larger risk of getting into an accident than someone over 25. In fact, you are virtually guaranteed to have at least a fender-bender before you turn 25 and so insurance companies offset this risk by charging young adults more for car insurance. So, the first tip that you can consider is waiting as long as possible to get car insurance. If you on your parent’s policy, just because you can move to your own car insurance doesn’t mean that you should. Until you turn 25 and can get a cost-reduction, avoid getting insurance yourself unless you have to.
Your Credit History & Home Ownership
One of the big things that insurance companies consider before deciding what you’re going to pay is what your credit history looks like. Someone with bad credit is going to pay quite a bit more than someone with good credit, and those like yourself that have no credit, are considered to have bad credit. Insurance companies put those who have bad credit into the category of customers who will probably file claims more often than someone with good credit.
This might be unfair, but they base it on market research and statistical analysis. There is also the added fact that you don’t own a home. In fact, you probably haven’t even graduated college yet and are still single. These are all factors that insurance companies look at and in the case of being married, a college graduate, and homeowners give major discounts for. So, start building a credit history and you’ll be able to get a discount for that good credit.
There is one more reason that you’ll pay so much. When you are on your parent’s policy, you not only get a discount for how long your parents have had the policy,, you’ll also get a discount for adding multiple vehicles to one insurance policy. But when you fly solo, you lose both of those things.
What About the Good News?
There is some good news when it comes to getting car insurance as a young adult. Many of the discounts offered by insurance companies will apply to you if you were on your parent’s policy previously. For example, you will get a discount for having had insurance previously, and that’s some pretty big savings right there. You also have some driving experience which is going to save you money as well on your premium. If you have had a clean driving record since you started driving, then you could qualify for another discount right there. Then, there are what are known in the industry as ‘legacy discount’ which means that your parents might have qualified for discounts that have now been passed onto you. For example, if the company offers a discount for the next generation of drivers – that’s you – sign up for car insurance as well.
You also can save money by signing up for the amount of insurance that you actually need rather than what the agent recommends. While it can be nice to have insurance against fire, flood and theft, you might be able to get by for a while with just a collision policy, until your income increases.
There are a number of factors that affect how much insurance you actually need that range from your asset values, and the number of dependants you have. However, for the purposes of most people just starting out, what you should be concerned with is how much out of pocket you can afford to pay, and adjust your deductible accordingly. You might have to budget a little more carefully to make a larger payment, but you will be thankful if an accident happens and you can afford the deductible so that you can get your car up and running again.
You definitely need to shop around when you start looking for insurance because you might get a better rate somewhere else completely. While you might receive discounts at your parent’s insurance company, another might be willing to offer you a better deal.
Compare quotes from several insurance companies side-by-side and evaluate just how much value they are offering for the premium. Look at the deductible, the type of coverage and all of the other factors that you would normally weight when considering insurance. Remember, an insurance agent or broker might recommend a specific insurance company or policy to you, but if you make it clear you want to shop around, they will probably gather quotes for you to evaluate. Insurance quotes can vary widely from one company to another. Even two very similar policies can be vastly different on a few – important – factors, so make sure you do your research diligently.