When new parents contemplate the cost of raising children, they typically consider daycare, extracurricular activities, clothes, and birthday parties. The list is endless, really.
But as children move through their teens, and parents envision an end to braces and March Break getaways, one mighty expense looms large. Car insurance. Young people aren’t cheap to insure even as occasional drivers, and the cost has risen significantly over the past decade.
In fact, I am coincidently in the process of writing this post, a client sent me an email asking for assistance in getting auto insurance for her 16 year old daughter. It was as an occasional drive on her leased car. The bank quoted her between $4,000-5,000.
Typically, sons cost more than daughters. The price can vary widely depending on all sorts of factors. As an example, you’re looking at an insurance hike of perhaps $900 a year when your daughter becomes a full driver. For a colleague with a son, and a new car, it’s far steeper: $3,600.
A male could be charged 30 per cent to 50 per cent more than a female according to the Insurance Bureau of Canada.
Most families in this situation begin this journey with their child when they receive their G1 licence in Ontario. That’s the first step in the province’s graduated licensing program (other provinces have similar ones). They will be added to your existing insurance policy in about a year, assuming they pass a road test and get their G2.
That gives parents some time to develop a strategy for dealing with this approaching expense.
First step
You’ve already completed the first step in your strategy when you’ve enrolled your child in a government-approved driving school. This isn’t a money-saving tip in the short-run, since your upfront cost is about $900, which is on the cheap end.
Check online with your province to see if it’s a government-approved driving school. You can get a discount on your insurance for about three years when your child is added to your policy as an occasional driver, which may offset some of the expense.
The discount is about 10 per cent so you won’t recoup all the money spent on the driving school. Still, you can see the benefits: your child gets the training, in a car that’s not yours. Sort of see the insurance savings as a bonus.
Second step
Shop around for insurance. It’s worth asking questions about how different insurance companies approach young drivers.
Some insurers may take a more punitive approach, while others may offer bigger discounts for driver training programs. Just because you’ve got a great premium doesn’t mean that your child will too.
You are looking at about a 50 per cent increase for a freshly minted occasional driver, which is typical. Still, take that as an opening position.
Third step
Take a good look at your car.
For example, in today’s market, consider an expensive electric vehicle that is less than four years old. While you might like it very much, you can also see that it might not be the best sort of car to entrust to anyone but yourself.
If you own a beater, count your blessings.
If you own two cars, and you are allowing your child to drive either one, the insurer will take the more valuable vehicle into consideration when calculating the premium.
Need a workaround? You can nix access to the more expensive car, but you’ll need to sign a form with your insurer.
Fourth step
When your child moves out, perhaps for university, keep them on your insurance policy as an occasional driver. Part of the goal here is to give your child access to your car when they are home during vacations or between years at a postsecondary institution.
More importantly, though, they will get additional driving experience and extend their insurance record as they crawl toward the age of 25, when premiums for experienced drivers tend to drop.
And if you let your insurer know that your child is moving away for school, you might get a discount. If your child is away 50 per cent of the time, they may drop the premium by 50 per cent, because the exposure is not there.
The bottomline
The key here is two fold. Do your homework and work with an insurance broker. Not sure how to make the introduction to a good insurance broker? Get a referral from another professional you work with such as your mortgage broker or financial advisor. Oddly enough, for the client mentioned at the beginning of this post, that’s exactly what we provided.
The auto insurance industry is continually making changes to fees and premiums as a result of the economy, the cost and sophistication of vehicles and their repairs, and mandated government regulations. Most consumers find wading through their insurance needs, options, and premiums convoluted and troublesome. Finding solid professional advice is a smart way of Keeping Life Current.
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