Car insurance for young people is full of challenges. Premiums for young people (under 25 say) are much higher than more experienced drivers.

Common wisdom tells us that it is much cheaper to get covered under your parent’s policy if possible. While this drives up the cost of their insurance, it is still a cheaper way for young people to get insurance than taking out their own policy.

Building up your no-claim bonus

However, one of the impacts of being covered by your parent’s insurance policy is that you are not building up a no-claim-bonus rating of your own.

If you insure a car in your own name you build up your own no-claim-bonus rating. This may not be as expensive as it would be for older drivers because let’s face it – most young people are not driving expensive cars when they are buying them for themselves. A cheaper car is going to be cheaper to insure, so while you are young and not spending on premium cars, now is the time to build up your no-claim-bonus in your own name.

Not all car insurers want younger drivers

Plus, you really need to shop around on insurers when looking for car insurance for young people because not all insurers treat young drivers the same when it comes to insuring them. Some insurers with large books can handle young drivers as part of their overall portfolio but other, particularly some of these new entrants into the market that are advertising themselves as being very cheap actually cannot handle younger drivers and so whack on a large premium to deter buyers or if they continue they are picking up a much higher premium.

Older cars are not that much cheaper for young drivers to insure

One of the common misconceptions about car insurance for young drivers is that a 10 year old car will be much cheaper to insure than a new car. For young drivers the difference is pretty marginal and as a percentage of the value of the car actually goes up hugely.

For example, let’s say a young driver is trying to decide on buying a 1-2 year old Toyota Corolla verses say a 10 year old one. A 1 year old Toyota Corolla might be worth around $20,000 and for an under 25 year old driver could cost around $2,200 per annum to insure – so around 12.5% of the value of the car. If we look at a 10 year old Toyota Corolla worth around $5,000 the car insurance for a young driver on this car will probably be around $1,900 only $300 less! This sounds a little cheaper but clearly not much, but worse it is almost 40% of the value of the car.

Key messages:

• Younger drivers must shop around to find an insurer that wants them
• Really evaluate the benefit of having the insurance in your own name – especially for cheaper cars
• Buying an older car isn’t necessarily going to save a young driver that much on their insurance