By Getting a Driver’s License at 16, Young People Can Set Back Families by More Than $33,000 in Insurance Costs

Adding a young driver to an existing car insurance policy costs much less than purchasing a separate policy or insuring a vehicle for which they’re the primary driver. However, even the cost of adding a young driver to a policy can be a heavy financial burden. Families should think carefully about their financial situation and long-term budget when planning for a new — and young — driver.

ValuePenguin's analysis of rate data shows that the cost of adding a 16- to 19-year-old driver with high academic marks to a family's auto insurance policy — even as the third operator of a vehicle — equals $4,799 a year on average. Without a discount for good grades, insuring a teen can cost an average of $5,109 annually, but the expenses vary by location.

Depending on the state, the cost of adding a teen — even with a discount — can represent more than 10% of a family's income. Additionally, data suggests families in the poorest neighborhoods in the largest cities can face insurance costs that are thousands of dollars more expensive yearly than what the cities’ wealthiest residents would pay to add a young driver to a policy.

Key findings

The annual cost of insurance decreases by 37% for families that add a 22-year-old driver compared to those who add a 16-year-old driver

It's highly expensive to add a teen to an existing car insurance plan. Designating a 16-year-old as a driver of an insured vehicle carries an average cost of $5,380 a year. The cost of insuring a young driver falls as the individual ages. If the young driver waits until they're 22 years old before getting their license and being included on an insurance policy, the cost to cover them drops by 37% to $3,931 a year.

On average, adding a 16-year-old driver to a car insurance policy takes up 6% of a family's budget per year until before the driver turns 23. While on the surface this isn't a huge sum, expenses can be drastically higher depending on location. In six states, it takes up more than 10% of a family's budget to insure a 16-year-old, at a rate of $10,623 a year. For auto insurance in Michigan, where coverage is notoriously expensive, the typical family could devote more than 20% of their income to insurance coverage.

But it's not uniformly expensive to carry a teen or young-adult driver on an existing car insurance policy. In the five least expensive states for 18-year-old car insurance by the percentage of income, the average cost of adding another driver is $2,867 a year.

In the most expensive states, the stand-alone cost of adding an 18-year-old driver to an existing policy is often cheaper than it would be to purchase stand-alone coverage for them and their own car, for which they'd be classified as the primary user.

However, it's still a good idea to consider whether buying a separate policy for a teen driver is right for one's budget. Since the costs of teen car insurance are high, the combined cost of a teen's policy plus a policy for the parents could be higher than the cost of adding a driver.

Good student discounts can result in 6% cheaper rates, but they don't affect the expenses a typical family allots to car insurance

The cost to add a teen or young-adult driver who qualifies for a good student discount to an existing policy results in 6% savings a year, on average, from ages 16 to 22. Families of 16- and 17-year-old drivers whose grades are high enough to qualify for the discount can save the most, as there's a 7% difference between the cost of insurance with and without the savings.

These savings shouldn't solely lead most families to purchase coverage for their young or teen drivers. The financial burden still looms large, as the combined cost of auto insurance when including a 16- to 22-year-old driver with a good student discount on one's family's policy is $31,331.

In other terms, the expenses a family can expect to incur on coverage for a young-adult driver equal 6% of the typical budget with a good student discount and 6% without. Therefore, the potential savings for a family don't actually improve over the course of time it takes a teen to age to 22 years old.

As with the young drivers who weren't students or didn't qualify for a good student discount, the overall cost of insuring a good student driver can take up a significant portion of a family's budget. While the average cost of adding a young driver to an insurance policy equates to 6% of a family's budget per year, the cost can be exponentially higher in some states.

In five states, the cost of car insurance for 18-year-old drivers exceeds 10% of a typical family's budget. In Michigan, again, insurance can take up 19% of a family's budget — even with a good student discount. Moreover, in the most expensive states, the good student discount only reduced overall annual expenses by less than 2%. In Florida, the largest insurance providers showed no change with the discount applied.

The following table displays the percentage of income in each state that a family of three devotes to car insurance if they add one 18-year-old driver with good grades to their policy. For comparison, the second column shows the difference in cost for insuring a driver who doesn't qualify for a good student discount. The average difference between the policies with and without a discount is only $263 a year, meaning that a significantly higher proportion of income isn't marked for insurance in a typical family.

The neighborhoods earning the least are paying hundreds or thousands of dollars more for insurance than their wealthier counterparts

The discrepancy between car insurance quotes for poor and wealthy families means that those earning smaller incomes will be less able to afford an extra driver. It also reveals a deeper issue of inequality. Since the base premium is higher for families with lower incomes, it's harder for those people to afford to drive legally, which restricts their ability to move around for work or pleasure.

ValuePenguin compared the cost of car insurance in the wealthiest and poorest sections of the three largest cities in the country — New York, Los Angeles and Chicago. The Federal Highway Administration estimates that there are more than 101,000 miles across these three metropolitan areas. Still, despite the prevalence of roadways, access to affordable car insurance isn't guaranteed.

In New York City's five poorest ZIP codes, insurers quoted an average rate for families adding one driver — aged 16 to 22 — to an existing policy that was $3,929 greater a year than for a similar consumer in the city's five wealthiest. Indeed, in the lowest-income area, which spans the neighborhood of Hunt's Point in South Bronx, drivers were charged $4,856 more to add a 16-year-old driver to an existing policy than a comparable shopper hailing from Lower Manhattan's Tribeca.

The stories in Los Angeles and Chicago are similar. In Los Angeles, drivers in the poorest neighborhoods are charged $441 more a year on average than those in the wealthiest parts. However, unlike in Chicago and New York, it actually costs slightly more for coverage in parts of the luxurious Bel Air than it does in Downtown Los Angeles. The state of California, unlike New York and Illinois, has more rigid insurance ratings laws that restrict insurers from using non-driving characteristics to determine costs.

In Chicago, those living in the poorest neighborhoods could pay $2,242 more a year than those in the highest-earning areas. In North Cook County, the cost of car insurance is $2,329 more expensive than it is in Chicago's Englewood neighborhood.

Methodology

We analyzed the data for 16- through 22-year-old drivers who did and didn’t qualify for good student discounts. We found the cost of adding these drivers to an existing policy as the third driver of a vehicle in every state. The young driver’s 45-year-old parents were primary drivers of the insured vehicle.

For our city analysis, we gathered rates from the ZIP codes comprising the nation's largest cities by population and their suburbs, as designated by the borders of their respective counties. Our data is from the following counties:

ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only, as your quotes may be different.