You have decided that your teen is responsible and mature enough to own and drive a car, and included it in the family budget. What are the factors you need to consider in buying and insuring his or her car?
- Research – Research the purchase with your teen. Along with viewing cars for sale, be sure to check out safety ratings and insurance ratings, crash test results, fuel economy, reliability, and value. Edmunds, Kelley Blue Book, J.D. Power, fueleconomy.gov and IIHS are all useful references.
- New vs. Used Car – Typically, a new car is more reliable but costs more to buy and insure, and depreciates rapidly. A low-mileage used car is often the best way to go. Make sure you have it checked out thoroughly by a mechanic, and get a CARFAX report to check for past damages. Accepting dings and scratches could save significant money.
- Expenses – Even if you could afford to pay for all the expenses, it is probably best that you don't. Car ownership is an excellent way for teens to show responsibility. Divide the costs in whatever way makes sense for your family.
One cost-sharing method is to have your teen contribute a certain amount of the purchase price of the car (whatever amount you think is appropriate for your situation) and make them responsible for operating expenses. Sit down together and lay out a spreadsheet of all the expenses they may not be aware of – insurance, taxes, maintenance, estimated gas costs – and help them establish a budget.
- Type of Car – Most teens are going to want something powerful, flashy, and stylish. You want something safe, reliable, and with just enough power to do the job. Smaller sporty cars and hulking, hard to control ones can be equally dangerous. To settle any possible argument here, simply trot out this modified version of the Golden Rule: “He who has gold makes the rules.” That, presumably is you.
From a safety and insurance standpoint, a four-door midsized sedan equipped with airbags and good crash test ratings is typically the best choice. Any extra safety systems such as blind spot notification and back-up cameras are plusses.
- Policy Ownership – Does it make more sense to add your teen to your policy, or should they get their own policy? It depends on which factors are more important to you.
It will almost certainly cost more to have them get their own policy, but it will reinforce personal responsibility. Adding them to your insurance should produce less total increase than a separate policy – unless an addition voids your safe driver discounts and other accumulated perks. Most parents simply add their teens to the existing policy.
Now that your rates will go up with your teen on the policy, consider a higher deductible to keep costs down -- but be prepared to pay for fender benders. Also, be sure not to skimp on liability, as you now have a high-risk driver on your policy.
- Insurance Discounts for Teens – Many insurance companies offer discounts to teens for maintaining good grades and completing a driving safety course – arguably, a driving safety course is a good idea even if no discount is offered. If you are open to changing insurers, you can compare the relative discounts.
- Driving Habits – Are they just driving to school, or will they need the car for social purposes, or driving to work? Will it be a part of their job (such as pizza delivery)? In that case, or if they will be driving at high-risk times or for longer distances, you will probably need more insurance coverage.
Soon you will be watching them drive off with a smile on their face, as you wave goodbye with a small tear in your eye and a fistful of antacids at the ready. Just remember that your own parents had the same feeling when you started to drive, and embrace the moment. Keep in mind the promise you made to be much cooler as a parent than your parents were!