Why Is Car Insurance So High for Teens & Young Adults?

Young drivers make more claims against their insurance policies than older drivers do.
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Many young adults have lived on their own for years, have graduated from college or have held jobs successfully. So it might stand to reason that they’re just as responsible as their older counterparts behind the wheel. But insurance companies beg to differ, and until you’re 25, you can expect to pay insurance premiums that are significantly higher than those of more mature drivers. Although this might seem arbitrary and unfair, insurance companies aren’t just taking advantage of young adults.

Basics: Underwriting

Insurance companies don’t just sell drivers policies without having some idea what they’re getting themselves into. Insurers use a process called underwriting to determine the likelihood that you’ll make a claim against your insurance, and how big it would be. Many factors, such as your driving record, the type of car you drive and your age, are taken as indicators of how likely you are to make a claim. Statistically speaking, drivers younger than 25 are more likely than older drivers to make claims.

By the Numbers

The underwriting process isn’t arbitrary, as insurers have data to back up their formulas. Drivers between age 20 and 24 are at least 50 percent more likely to make every type of claim than are drivers between 30 and 59, as of 2007, according to the Highway Loss Data Institute. Insurers are more than twice as likely to pay out medical payment and bodily injury liability claims for young drivers than for older ones.

Finding Discounts

Most drivers younger than 25 are a bigger insurance risk on average than older drivers, but that doesn’t apply to all of them. Drivers who show that insuring them isn’t nearly as risky as providing coverage to their peers might receive discounts. A clean driving record, or taking a defensive driving course if your record isn’t perfectly clear, can help lower your premium. Other times, safety features such as side-impact air bags or anti-lock brakes can help reduce your chance of costing your insurer a fortune.

Other Factors

Youthful drivers aren’t the only class that’s considered a risk for insurance companies. Drivers’ chances of making a claim climb steadily after they reach age 75, according to the Highway Loss Data Institute, with loss payments for drivers who are older than 85 about equal to those made on policies of 20- to 24-year-olds. Business executives and lawyers traditionally pay higher rates than other professionals, in part because they're thought to spend more time on the phone while driving, according to DMV.org.

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