STAY ON YOUR PARENTS’CAR INSURANCE?
When a young driver gets their first license, in the vast majority of cases, the best financial option is to put them on their parents’ car insurance. Indeed, some insurance companies will mandate that this happens.
However, as housing costs increase, more and more young people are remaining at home rather than moving into their own housing.
According to the Pew Research Center, one-third of all 25-29-year-olds lived with either their parents or grandparents.
By comparison, in 1970, one in eight 25-29-year-olds lived with their parents. This is having a number of effects when it comes to things like car insurance.
Having an adult child living at home raises the question of whether it’s better to keep them on their parents’ car insurance, or whether it’s better to have a separate policy. This guide will examine the financial pros and cons and outline the best option for all parties.
UPPER AGE LIMIT
The most important fact when it comes to children on their parents’ car insurance is that there is no upper limit. Unlike health insurance, which has a 26 cut off, a child can stay on their parents’ car insurance for as long as they want, as long as they meet the other criteria for eligibility. However, there are often related factors when it comes to age.
CAR INSURANCE COSTS DROP WITH AGE
Putting a teen driver on their parents’ car insurance is a financial no-brainer. The costs of insuring a teen are often extremely great, owing to the (relative) frequency with which they require a payout. However, as the young driver gets older, the cost of insuring them drops rapidly.
Average per year Insurance Rate ( $ )
As the table (above) shows, the cost of insuring a driver drops rapidly after they hit 25. Of course, this will vary depending on other factors, although it may be the case that when a child hits a certain age, adding the cost of their own insurance to your insurance is more expensive than having two different insurance policies.
You will need to crunch the numbers for your own individual circumstances, although as a general rule, the older the child, the more viable it will be to have them on their own insurance.
GENDER IS A FACTOR
Along with age, gender plays a role in insurance costs. Young female drivers require fewer claims than young men, and, as a result, their insurance premiums are lower.
THIS VARIES BY AGE, AS THE TABLE BELOW SHOWS
Average per year premium for a male driver ($)
Average per year premium for a female driver ($)
Again, gender is a key metric that will feed into the cost of your car insurance calculations, although the cheaper the person is to insure, the more feasible it will be to have them on their own insurance.
LIVING IN THE SAME HOME
Aside from any of the financial considerations, you also need to examine the legal aspects of your decision.
For example, most insurance companies will require that you list all licensed household members on your car insurance policy, including your child.
The insurance company assumes that if you live in the same home, you are likely to use the same vehicles, and therefore it is compulsory for all residents to be listed on the same insurance policy.
IF A CHILD MOVES AWAY
A key issue comes if a child moves away from home. Although it may seem like that’s the time for them to get their own insurance policy, it may make financial sense for them to stay on yours.
Insurance companies have slightly different criteria when they allow children who do not live at home to be listed on the policy.
You should be sure to check your contract and/or speak with a representative on the phone.
Some insurance companies have a threshold for ‘financial independence’ – once a child reaches the level of financial independence, they no longer allow for them to be on their parent’s insurance.
How they define ‘financial independence’ does differ from company to company, although what they have in common is that they usually see the following two as a threshold for financial independence.
OWNING A HOME
If your child owns their own home or apartment, then an insurance company will consider them to be financially independent, and will no longer allow them to be on your insurance.
If they rent an apartment of their own, they have not yet met the threshold for financial independence. Similarly, if the home that they own is in your name, then you will still be able to have them on your own insurance.
If your child gets married, then regardless of their financial position, they are usually considered to be independent financially.
Under some circumstances, such as if they are still teenagers or still live in the home with their parents, the insurance company may not consider marriage to be a threshold (although you may need to put the spouse on your insurance).