Is There a Way to Insure Teen Drivers Without Breaking the Bank?

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New 50-State Study from MoneyGeek.com Reveals Stunning Rate Hikes

Who would expect to pay an extra $3,790 a year for their teen driver?

As teens dream of drivers’ licenses while heading back to school, a new study finds that a rate hike for the family car insurance premium may be far worse than parents bargained for.

If parents fail to comparison shop for car insurance -- or if they give in to their teen’s plea for a sports car -- it could add thousands of dollars to their yearly car insurance premiums, according to a new nationwide study of car insurance data by the personal finance website MoneyGeek.com.

The study, which examined data from the five leading insurers in each of the 50 states and the District of Columbia, also found that in some states, simply adding a teen driver to the family premium could be prohibitively expensive.

“We all know that when teens start driving, parents are going to have sticker shock when it comes to car insurance,” says Lydia Poon, executive editor of MoneyGeek.com. “But who would expect to pay an extra $3,790 a year for their teen driver?”

“That’s the median price hike we found a middle-aged Louisiana couple with two cars could expect – choosing among the state’s five largest insurers – if they add a teen to their policy,” Poon says.

In Texas, parents will pay a bit less – $1,969, or an increase of 130% -- to add a teen to their policy. But if they choose a car that insurers associate with speeding – such as a sports car – it could pile on thousands more. In Texas, MoneyGeek.com found that parents who own two 2014 Mustang GTs will pay an average of nearly $2,700 more a year than parents who own two older-model Town and Country minivans.

Nationwide, parents can expect to see their policies soar when their teen starts driving. And if they don’t take the right steps, that price tag could double or even triple, making car insurance an exorbitant proposition.

One key misstep, MoneyGeek.com found, is failing to shop around.

Insurance carriers “will raise the rate on people who aren’t comparison shoppers,” says Bob Hunter, director of insurance for the Consumer Federation of America and the former Insurance Commissioner of Texas.

“If you stay with them for four or five years, they will start raising your rates,” Hunter told MoneyGeek.com. “It’s sort of a loyalty surcharge.”

Parents with teen drivers might think they could save a few hundred dollars on yearly premiums by shopping around, but MoneyGeek.com found that they might actually save thousands.

In California, for example, parents who choose Farmers Insurance could expect to pay a minimum of $4,089 a year. If that same family chose Mercury Insurance, premiums started at $1,664 – a savings of nearly $2,500 a year.

Additional effective ways to save with a teen driver include raising the deductible, bundling coverage with homeowners’ insurance and helping teens avoid tickets for risky driving, including speeding, drunk and distracted driving, insurance experts told MoneyGeek.com.

MoneyGeek.com incorporated its study’s findings into its 50 state guides to car insurance and road safety, where consumers can compare premium costs among the five largest insurers in their state. They can also find out how their state ranks in terms of road safety and what they need to do to satisfy insurance requirements there.

The aggregate rate hikes for drivers in real life may differ, the study authors point out, since MoneyGeek confined its analysis to the five leading insurers in each state and created profiles of drivers that were consistent from state to state. Other distributions of profiles and policy selections could result in different outcomes.

About MoneyGeek.com
MoneyGeek.com is a consumer website with a mission to help individuals make smarter financial decisions. MoneyGeek.com staffers are personal finance geeks with decades of combined experience in writing and publishing information about how individuals should manage money and credit. The website offers calculators, tools, and in-depth information on insurance, mortgage, credit cards, business loans, saving and budgeting, and more. Learn more at http://www.moneygeek.com

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Diana Hembree
MoneyGeek
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