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Why is Car Insurance So High for Teenagers?

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Joel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance Q&A: “Why is car insurance so high for teenagers?”

The answer becomes abundantly clear when we consider that insurance is a business.  Insurance companies are out to earn money.

The business model is simple.  Collect small, calculated amounts of money from as many individuals as possible based on projections of how much money will be paid out in insurance claims caused by the individual’s class or segment.

Insurers attempt to be as fair as possible, charging higher rates to those who have more accidents…which brings us to teenage drivers.

The statistics differ depending on where you get them from, but all demonstrate a similar conclusion that teen drivers have, by far, more accidents than any other class of driver.

According to the Centers for Disease Control and Prevention, “Motor vehicle crashes are the leading cause of death for U.S. teens, accounting for more than one in three deaths in this age group.”

How does this terrifying statistic translate to car insurance companies?  Cost.  Estimates show teen drivers, who account for only 14% of licensed drivers,  “account for 30% (19 billion) of the total costs of motor vehicle injuries among males and 28% (7 billion) of the costs…among females,” according to the CDCP.   With numbers this conclusive, insurance companies must charge teenagers higher rates to cover those accidents (how much is car insurance for a 16 year old).

The statistics are indisputable, but do not tell the whole story.  It is important to remember teen drivers are inexperienced behind the wheel and often, according to statistics, make poor decisions regarding drinking and driving as well as speeding.  Both factors contribute to a high percentage of bodily injury and death related accidents.  Lack of seatbelt use also contributes to many injuries for this driver class.  It relates to the feeling on invincibility often associated with being young and inexperienced.

Teens and parents of teens will have to pay more for auto insurance until these statistics are reversed, which according to all data available, isn’t going to happen any time soon.  To make matters worse, talking on a cell phone and texting while driving are steadily accounting for more teen accidents annually.

The best thing your teen can do is maintain good credit, get good grades in school, obey traffic laws and drive defensively throughout the teenage years.  All of which will lead to becoming eligible for discounts offered by insurance companies, such as the good student discount and the good driver discount.

Call your insurer or independent insurance agent to determine if your teen qualifies for such discounts.

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