Car Insurance: The expenses associated with insurance for individuals in their early twenties can be significant. Following teenagers, young adults face some of the highest car insurance premiums in the country.
In 2020, an analysis of the top five insurers in the nation revealed that the average annual car insurance rate for drivers aged 20 to 25 is approximately $2,200 for full coverage.
This amount is roughly $700 higher per year compared to the average rate for a 40-year-old driver.
Why is car insurance so expensive for young drivers?
According to the latest data from the Insurance Institute for Highway Safety (IIHS), drivers aged 20 to 24 are involved in more crashes than any other age group, second only to teenagers.
Similar to teenagers, young drivers lack experience and are more inclined to take risks such as speeding and neglecting to wear seat belts.
For instance, the IIHS reports that individuals aged 16 to 24 sitting in the front seat are the least likely to wear seat belts, and those who engage in speeding are generally younger compared to their more cautious counterparts.
Additionally, in 2018, 42% of drivers aged 21 to 30 who lost their lives in accidents had a blood alcohol content at or above the legal limit, surpassing other age groups in the study.
As drivers mature, there is a decline in risky driving behaviour, with crash rates stabilizing around the age of 30, as highlighted by Eric Teoh, the director of statistical services at IIHS.
Despite these trends, young drivers can still reduce their auto insurance costs by adhering to a few guidelines.
5 Ways Young Drivers Can Save on Car Insurance
1. Drive safely
Abstaining from alcohol while driving, steering clear of accidents, and maintaining a cautious speed may sound straightforward, but adhering to these principles can result in substantial savings on auto insurance.
According to a separate 2020 analysis, the average 25-year-old driver faces an increase of nearly 25% in annual full-coverage car insurance premiums after receiving one speeding ticket.
Moreover, the cost rises to almost 50% more annually after involvement in a car accident.
Michael McCartin, president of Joseph W. McCartin Insurance Inc., an independent agency in the Baltimore and Washington, D.C., metro areas, emphasizes that maintaining a “ticket- and accident-free” record significantly contributes to more affordable insurance.
He adds, “You don’t want to be 22 years old and looking for insurance with three tickets.”
2. Shop around
Aside from age, insurers take various factors into account when determining rates, including gender, location, and the make and model of your car.
Due to the varying importance, each company places on these factors, obtaining car insurance quotes from multiple providers is the most effective way to secure a favourable rate.
It is advisable to regularly compare car insurance rates from at least three insurers, ensuring that the coverage amounts are equal. This should be done annually or whenever significant life changes occur, such as relocation or marriage.
3. Take advantage of discounts
Inquire with your insurer about potential discounts that you may be eligible for. According to McCartin, young drivers can achieve significant savings by bundling insurance, especially if they purchase another policy from the same company.
Additionally, young drivers residing with their parents can save by remaining on the same policy.
There are other discounts that young drivers can explore, such as reduced rates for being a student living away from home, earning good grades, and completing a driver’s education course.
4. Consider nontraditional car insurance
If you anticipate driving infrequently in the coming months, you have the potential to save money by transitioning to pay-per-mile insurance, where rates are determined based on the number of miles you drive.
Likewise, if you demonstrate safe driving habits, exploring usage-based coverage might be beneficial. This type of coverage utilizes an app or device to monitor driving behaviour, such as speeding and hard braking, to provide a discount or reward.
While some companies specialize in per-mile insurance, it’s worth noting that many traditional insurers now provide both of these options.
5. Enhance Your Credit Score
In many states, insurers utilize a credit-based insurance score to determine your auto insurance premium. This score evaluates factors like payment history and outstanding debt, resembling the credit scores used for obtaining a credit card or loan but with different weighting.
It’s important to note that this practice is not permitted in California, Hawaii, Massachusetts, or Michigan.
In states where credit significantly influences car insurance rates, it can sometimes have a more substantial impact than a DUI for certain drivers.
According to rate analysis, on average, 25-year-olds with poor credit pay 74% more annually for full coverage car insurance compared to drivers with good credit.
To improve your credit, consider:
Paying bills on time.
Reducing credit card debt.
Maintaining a low credit utilization rate, which is the percentage of your total available credit that you are using.
Young drivers have several avenues to explore to save on car insurance. By maintaining a clean driving record, avoiding risky behaviours, and regularly comparing quotes from different insurers, they can secure more affordable rates.
Additionally, taking advantage of available discounts, such as bundling policies and maintaining good grades, can lead to substantial savings.
Exploring alternative insurance options, like pay-per-mile or usage-based coverage, may also be advantageous for those with specific driving habits.
Moreover, recognizing the impact of credit on insurance rates and actively working to improve one’s credit score can contribute to significant cost reductions.
By adopting these strategies, young drivers can navigate the insurance landscape more effectively and enjoy the financial benefits of responsible driving and informed choices.
Q: Can young drivers save money by bundling insurance policies?
A: Yes, bundling policies, such as combining auto and renter’s insurance, often results in significant discounts from insurance providers.
Q: How do pay-per-mile and usage-based insurance work for young drivers?
A: Pay-per-mile insurance charges drivers based on the number of miles driven, while usage-based coverage assesses rates according to driving behaviour tracked through devices or apps, offering potential discounts for safe driving habits.
Q: Are there specific discounts for students or young drivers living away from home?
A: Yes, many insurers offer discounts for students and young drivers living away from home. Maintaining good grades and completing a driver’s education course can also lead to additional savings.
Q: Does having a poor credit score significantly impact car insurance rates for young drivers?
A: Yes, in many states, a poor credit score can have a considerable impact on car insurance rates. Improving credit by paying bills on time and reducing debt can lead to lower premiums.
Q: Are there any states where credit-based insurance scores are not used?
A: Yes, California, Hawaii, Massachusetts, and Michigan prohibit the use of credit-based insurance scores for determining auto insurance rates.