Being a parent is hard work, and we always want the best for our children. So it’s only natural to want to help them save money so they can get a good start in life and begin a fulfilling career.
So, when our beloved children pass their driver’s license test, we quickly start thinking about their car insurance. We might think that if we buy a vehicle in our name and list our child as the primary driver on our own car insurance policy, it will save them money. This idea is not entirely wrong, of course, but it is not ideal. Here’s why:
First and foremost, we want our children to be safe. So we tend to gravitate toward newer vehicles. However, car manufacturers have been working hard for many years to improve safety in their models.
Today, it is perfectly possible to buy a vehicle that is around ten years old and still very safe. It is important to note that not having financing means fewer insurance requirements and, as a result, a more flexible premium. This idea is even more appealing when you consider that it costs more to insure a young driver with collision coverage.
It goes without saying that for an insurer, a young driver with little driving experience is more likely to be involved in an accident than an experienced driver. This is where owning a vehicle outright makes sense, as a creditor who owns the financing will require the vehicle to be fully insured.
The key point to remember is that a vehicle without financing offers freedom of choice in terms of possible coverage and therefore more flexibility in terms of the resulting premium. But then, is there really any difference between the premium you will pay on your own insurance policy and the one your child would pay? The answer to this question remains vague, as the premium will depend on each individual’s circumstances, but overall, the difference is often not that great!
We live in a society where credit ratings reign supreme, whether it’s to qualify for a loan or to get a better insurance premium. So, helping your child buy a vehicle in their name (without financing) will allow them to take out an insurance policy in their name, which will help them build up a good credit rating more quickly. What’s more, since they will have insurance liabilities sooner, they will also have access to much better premiums sooner.
The ease of obtaining financing for the purchase or lease of a new vehicle is a double-edged sword.
In recent years, the automotive market has made it much easier to purchase a vehicle with 2nd and 3rd chance credit financing. Although not recommended (see article on this topic), these options are available to facilitate the purchase.
This means that someone in their early twenties who has just started working can more easily afford a new vehicle. A young driver who already has a track record with insurance will have a much more attractive premium than someone who has always been on their parents’ insurance policy.
Finally, it is important to note that actuaries are busy calculating statistics for each vehicle model. When we look at these statistics, we see that certain vehicles and types of vehicles stand out from the rest in terms of their accident rates. Depending on the choice of vehicle itself, or the type of user it attracts, insurance premiums can therefore vary significantly.
Here is a summary of the ideal situation for giving a young driver an advantage:
- Even if it is their first vehicle, register it in the young driver’s name.
- Choose a low-value vehicle and purchase it without financing to avoid having to add additional coverage for collision accidents.
- Depending on your needs, add coverage for accidents without collision;
- Call your insurance broker to get an estimate of the potential insurance premium before finalizing the purchase of the vehicle.
- Buy a vehicle that fits your budget and take out insurance that you can afford to avoid cancellation for non-payment at all costs!