Case Study: Family with Teenage Drivers

If your family has teenage drivers, you’ve already learned what adding a young and inexperienced driver to your car insurance policy can do to your premiums.  Many families face sticker shock when they make the change to add a young driver onto their policy.  Insurance rates spike at this time simply because young drivers lack experience and are the age group most likely to have car accidents and insurance claims.

Parents are facing enough stress when kids get licensed without the added financial burden.  In this case study, I’m going to show some average pricing you might see and I’ll review some of the ways in which you might be able to mitigate some of the added expenses.

We’ll first look at some assumptions of the pricing outlook for a Family with Teenage Drivers:

• Married Couple
• Household Income of between $150,000 – $250,000.
• Three Cars:
  • One newer, one not more than 4-5 years old, and an older car, maybe 10 years old used by the young drivers in your home.
  • One person drives to work everyday or uses the car for business.
  • One person works from home most of the time.
  • The older car is used for a commute to high school or a part time job.
• You own your home which has a market value between about $400,000 – $750,000.
• Two teen-aged children, both are licensed to drive.
• You have an approximate net worth of about $500,000 – $1,000,000

If this sounds mostly familiar to you, you’re probably looking at premium ranges of the following:

• Personal Auto Insurance:  $4,500 – $5,500 annually (on average)
  Some of the key factors that will change your rate off this baseline include:

  • Age of drivers – if you have two teen-aged drivers, this is the prime factor driving your premium. Unfortunately, rates don’t really start going down much until your kids reach their mid-20s.  The most expensive time is when they’re younger and have fewer years of driving experience.
    • If any of your kids have taken drivers education courses, or if they have a B or better GPA, you can qualify for a discount to help reduce the your premium.
    • If any drivers are away at school, you might qualify for an additional discount.  There are two potential options here:
      • The discount applies if your child is at a school at a distance from your home of 100 miles or more, and they don’t have their car with them.
      • If your child takes the car with them to school, it may save you money if you show the car garaged at their school address.
  • Number of vehicles & drivers – this one might seem kind of obvious, but there’s a layer here that you might not have considered.
    • If you have two vehicles, then each parent is “Primary” on each vehicle, meaning that a young driver is only going to drive that vehicle “occasionally.”
    • However, if you have three vehicles, then one of the young drivers will automatically be assigned as a “Primary” driver, which will cause a significant increase in premium.
    • If you have four vehicles then you’ll have two young drivers assigned as Primary, further increasing your premium.
      • If you own a business, you can sometimes insure a vehicle on a Business Auto Insurance policy.  The premium savings here aren’t what they used to be because of how expensive Business Auto Insurance has become, but you might realize some tax benefits.  Note that you’ll also need to register the vehicle in the Business name to properly insure it.
  • Most other typical factors still apply – these include credit, location, the type of vehicles you drive, how you use your vehicles as well as any recent accidents, moving violations, or claims.
    • More detail on these factors can be found in our case study for a Growing Family.

• Homeowners Insurance:  $1,200 – $1,800 per year
  Some of the key factors that will change this rate might include:

  • The age of your home – Older homes are more likely to have claims, are more expensive to repair and are therefore more expensive.
  • Age of your roof – A roof that is recently replaced will save you money.
  • Size of your home – The more square footage, the more expensive is it to rebuild your home so you’ll have to insure the home at a higher value, increasing your premium.
  • The finish level of your home – A custom finish increases the cost of repairs, increasing your premiums.
  • The coverage you select – Different homes have different coverage needs.  If you have:
    • a finished basement, you’ll likely want to get water backup protection.
    • an older home, I’d recommend increasing the Law & Ordinance coverage.
    • jewelry that you want to protect, coverage is not automatic.
  • Security features of your home – These are things that will help you save premium: an alarm system, a whole house backup generator, water intrusion alarms are all things that can help prevent claims and reduce your premium.

• Umbrella Liability Insurance: $400 – $750 per year
  Important for protecting your assets and your future income

  • Umbrella Insurance policies have been some of the least expensive policies on market for some time; however, pricing on these policies is starting to increase.  Higher damages are commonly sought in law suits and Umbrella policies pay claims more than they used to.  Even with increasing premiums, these policies are essential to ensuring your way of life.
  • Regarding these policies and the pricing, there are a couple of key things to be aware of:
    • If you don’t have an Umbrella yet, it’s definitely time to get one.  Not only do you have more assets to protect now that you’re into your prime earning years, your exposure is likely at the highest it will be in your lifetime because you have teenage drivers.
    • Additional residences, rental properties, boats, motorcycles are all things that can (and should) be scheduled under your umbrella policy.  Each additional exposure will increase your premium, although these are all relatively small changes from a pricing standpoint.
    • It may also be worth considering additional coverage limits.  Consult with your risk advisor to determine the right limit to protect your family

Remember that this is only a guideline for the pricing you can expect.  Even the factors listed here don’t account for everything that insurance companies rate your policies on.  This is intended only to give you a baseline idea of what average pricing might look like.  

A New Look at Your Coverage

If you have a family with teenage drivers and the factors detailed here resonate with your life, I’ll add in a specific word of caution.  When we’re younger, we own less expensive cars, rent instead of own, don’t have much savings built up, and earn less money; therefore, we tend to have lower limits of coverage.  Not all insurance agents are proactive about helping you upgrade your coverage as your needs change.

What happens over time is simple: your life changes. You earn more money, you have nicer things, you have a brighter long term financial outlook.  You also have more to protect and insurance may not be something you think much about.

Coverage you selected before these changes happened no longer gives you the right protection.  Not only does what you have already built come into jeopardy, but so do you potential future earnings.  Insurance may not be exciting but it is important.  If this describes you, I urge you to take action today.  Our process uses technology to make things easy and convenient. We’ll give you truly professional risk advice and the peace of mind that comes with it.