One of the most bewildering aspects of car ownership for teenagers is that of auto insurance. It raises questions about why it’s needed, why it costs so much, how it works, and what happens when accidents happen.
We have noticed certain questions come up frequently on online question-and-answer boards used by teen drivers. So we have compiled a “top 10″ list of those questions, with answers, that may help teen drivers better understand car insurance.
1. Q. Why do I need car insurance?
A. Two reasons: 1) It’s the law in most states. In order to drive, you must have at least minimum-coverage liability car insurance to protect others whose lives and vehicles you might damage or destroy in an accident that is your fault — even though you might be a good driver and know that you’ll never have an accident, and 2) To protect yourself and your family against financial disaster should you be sued for an accident you might cause.
2. Q. Why does car insurance cost so much for teen drivers?
A. Simple. Insurance statistics and police reports show that teens have more accidents than any other age group. Therefore, insurance companies are at greater risk of having to pay out claims for teenagers — which means higher rates to help compensate for that risk. The highest rates are paid by teen males driving sporty cars in highly populated areas. Rates can vary by state and city, and by insurance company. That’s why it is so important for teens who need insurance to shop around and get quotes from multiple companies.
3. Q. Why am I only required by law to have liability coverage and not comprehensive or collision?
A. Liability coverage protects you when you damage property or hurt others in an accident you cause. It does not cover you if your own car is damaged, totalled, or stolen. That’s the purpose of comprehensive and collision. It protects you from the financial impact of having to repair or replace your car. Although you can do without comprehensive and collision, especially if your car is old and not worth insuring, you still must have liability. If you have a car loan or lease, the lender will probably require that you have comprehensive and collision insurance to protect “their” car.
4. Q. If I am involved in an accident, what do I need to do?
A. Call the police, and call your insurance company, even if the accident was the other person’s fault. Get the other person’s name, address, telephone, tag number, and insurance company and policy number. Report this to your own insurance company and in most cases they will take care of getting you a settlement from the other person’s company. You will also need a copy of the police report, which might take a few days. If the other person was at fault and had no insurance (or insufficient insurance), your company will take care of you and then take legal action against the other person. Having no insurance doesn’t relieve someone from their responsibilities.
5. Q. My transmission fell out of my car and my insurance company won’t cover it. Why?
A. Unless your transmission fell out as a direct result of a vehicle accident, it’s not covered by auto insurance. Auto insurance is not warranty repair coverage. Auto insurance does not cover wear-and-tear, worn out engines and transmissions, electrical failures or any other damages not associated with a vehicle accident. If you want coverage for such things, you can buy an extended warranty, which is often called “car repair insurance.”
6. Q. Which auto insurance company has the cheapest rates?
A. It depends. It depends on what state you live in, your age, your gender, your driving record, your car, where you drive, how many miles you drive, what discounts are available, and even your credit score. Each insurance company rates each of these factors differently, which means premiums are priced differently. The rates for a 17 year old guy in a particular state might be cheapest with Company A but Company B might offer better rates for 32 year old females in that same state. In other words, one insurance company does not have the best rates for everyone or all situations. Again, it’s very important to shop around and get rate comparisons from mulitple car insurance companies.
7. Q. I totalled my car and my insurance didn’t cover the full cost of my car or my loan balance. How can that be?
A. Insurance companies only pay what your car is worth — it’s so-called “replacement value” — not what you paid for the car or even what you still owe on your loan. Supposedly, you get enough to buy another similar car of about the same age and mileage as your old car. In many cases, customers feel the payment is not enough and it doesn’t take into account such things as low mileage, new tires, good condition, or extra equipment. If there is still an outstanding loan on the vehicle, the insurance company sends the check to the bank or finance company to pay off the loan balance. If the payment doesn’t fully pay off the balance (the loan is “upside down”), the bank or finance company will take action to collect the remaining amount from the customer.
8. Q. What if I can’t afford required insurance on my car? What will happen if I drive without it?
A. In most states, you can’t legally drive without car insurance. You are in violation of the law and, if caught, are subject to fines, punishments, and license suspension. And if you have a loan with a bank or finance company, your vehicle might be repossessed. But that’s not the worst of it. If you cause an accident that hurts or kills someone, even passengers in your own vehicle, or damages/destroys other people’s vehicles or property, without insurance you and your family will be sued personally for possibly hundreds of thousands of dollars. Some teens think this situation could never happen to them and use that as justification for driving without insurance. Don’t do it. Don’t even think about doing it.
9. Q. My car insurance has been cancelled because of my poor driving record. What can I do?
A. It depends on how bad your record is and what state you live in. There may be steps you can take to get re-instated or find an insurance company that accepts high-risk drivers. You can count on your rates being very high. The first step is to simply ask your insurance company exactly why you were cancelled and what they suggest you do to get coverage again. Many people who don’t seem to mind a few speeding tickets here and there don’t realize the long-term effects and cost of such behavior.
10. Q. What cars are the cheapest for car insurance for teenagers?
A. The cheapest cars to insure are those that are wrecked or stolen least often, and the least expensive to repair or replace. Cars with good safety equipment, such as anti-lock brakes and stability control systems, are have cheaper insurance. Insurance companies keep statistics that tell them which vehicles are the best and worst. Generally, smaller less expensive sedans and SUVs are cheaper to insure than large expensive sports cars, large SUVs, and luxury cars. Small sporty coupes with big engines (favored by teen males) are one of the types that are most expensive to insure — even if you are not a teen male. Cars with 4 cylinder engines typically cost less to insure than a similar car with a V8. Vehicles that are stolen frequently, such as the Cadillac Escalade, are very expensive to insure. High-end cars that are expensive to repair, such as Land Rover and Mercedes, are also expensive to insure.