College is a time of transition, adventure, and uncertainty, including those that border around financial issues. Many times, college students try to cut corners in their budget to help ease some of the financial strain. One of the first things to be cut? Car insurance.
Is car insurance really necessary in college? Most college students see a drop in the amount of time they spend behind the wheel. And if it’s not being used as much, it seems like car insurance would be a natural, even financially savvy, way to save money.
But what happens when you drop car insurance but keep driving? Can a car be repossessed for no insurance? Unfortunately, dropping car insurance isn’t a simple or straightforward decision. There are a lot of things to consider before making that call.
What is car insurance?
The easiest place to start in this debate is at the beginning. Before you cancel a car insurance policy, it’s important to understand what car insurance is. It’s not as simple as saying it covers accidents or damage to your car.
Car insurance is really a contract or an agreement. You, as the consumer, agree to pay a premium to an insurance company, and in return, that company will pay for any losses outlined in your policy.
At its most basic level, It’s a safety net. You may never use the policy. You may never incur losses in your policy, but it’s good to have just in case.
What does car insurance protect?
It’s a car insurance policy, right? So it must protect only your car in case of an accident. But that’s not the whole truth.
Your car insurance policy helps when there is damage to your personal vehicle, but it also helps when there is an injury to yourself or other drivers. There are actually three different categories of car insurance:
1) Property protection: This is probably the category most associated with car insurance. Property coverage protects you in the event of damage to or theft of your car. Depending on your coverage and policy, property coverage would cover anything from a flat tire to major damage from an accident.
2) Liability coverage: This type of coverage comes into play when there is an accident involving other people and vehicles. Liability coverage is the legal responsibility to others for damage to vehicles or injury to people.
3) Medical coverage: Medical coverage helps cover the cost associated with the treatment of injuries, rehab, even lost wages or funeral costs in the event of serious accidents.
You determine the type of coverage available to you or covered in your policy. Most insurance companies offer packages that include some or all of these coverage types. You can also select different coverage options in a more “a la carte” situation. Of course, the type of coverage selected comes at a cost.
Is car insurance expensive?
The overall cost of insurance coverage is often the biggest complaint, and the biggest motivation to cut it back or cut it out. It’s true that some coverage packages come with high price tags, but it does depend on each individual.
Factors That Affect Car Insurance Rates
There are a handful of factors that determine car insurance rates. The combination of these factors will determine the overall cost of an insurance package.
1) Generally, rural ZIP codes have lower rates than those in more urban areas. This is due largely to the number of cars on the roads in these areas. Urban areas are more heavily populated, so the risk of accidents is higher.
2) The type of car you drive can and will affect insurance rates. Larger cars and more luxury cars usually have higher insurance rates. Larger cars are more susceptible to damage and luxury cars cost more in repairs and upkeep.
3) Your credit history also plays a role in determining insurance rates. The higher your credit score, the lower your premium and rates will be. A lower credit score will often mean higher premiums.
4) Mileage will also factor into your rate calculations. If you don’t drive often, then the lower mileage will equal a lower rate. If the opposite is true, then you’ll probably see a higher rate. Insurance companies believe higher mileage means you are at higher risk of having an accident.
5) Your overall driving record. Insurance companies will look at past accidents or incidents on the road. Many companies will reward drivers who are more cautious and have fewer or no accidents on their record.
Don’t Forget the Deductible
The other financial consideration is the deductible associated with your policy and coverage. The deductible is the amount you are responsible for in the event of a covered loss. The amount can either be a predetermined dollar amount or a fixed percentage.
Most deductibles are between $500 and $1,000. If you are in a small accident and the damage to your car costs $2,000, then you will be responsible for the deductible cost. If your deductible is $500, then the insurance company will pay the remaining $1,500.
College and Car Insurance
So car insurance could be beneficial for some people, but what about college students specifically? Do they really need car insurance? The simple answer is probably, yes.
Choosing which insurance company or the type of coverage takes some know-how and research. This kind of search is like preparing for your career path.
The biggest reason for this is the risk factors associated with young drivers. Most studies show that teenagers between 16 and 19 years old are the highest risk group for car accidents. This means at some point in those early college years students will get in a car accident. Regardless of how severe that accident is, there will be a need for car insurance.
With a clear need for car insurance established, it’s time to turn to the details. There are a number of small pieces to consider when selecting and purchasing a car insurance policy.
Considerations for Car Insurance
There are a few questions to ask when determining the car insurance policy and configuration for a college student. The answers to these questions will help determine your needs.
a) Is the student staying at home or at school?
b) If they are staying at school, will the student take a car to school?
c) If they are staying at school, will they have access to a car to return home on breaks or weekends?
These questions help you and an insurance company determine if the student needs to be rated or excluded. The “rate or exclude” rule means each licensed driver in a household has to be rated for or excluded from the insurance policy.
College students can only be excluded from a household insurance policy if they change their license residence address or get an individual car insurance policy. Both of these options come with different advantages and drawbacks. The best choice will vary on a situational basis.
Car Insurance and Affordability
Distance, cars, insurance: It can all get a little overwhelming. But there is good news. There are ways to make the necessary car insurance more affordable even with the transition to college.
One way to make car insurance more affordable is to use a pay-per-mile option. This is a great option for students who won’t be driving often or over great distances.
Pay-per-mile insurance is only affected by the number of miles driven by the insured party. The coverage of the policy is unaffected, but there is a set number of miles available per day. Consider this type of policy for students staying at home or in a more urban area.
Available Car Insurance Discounts for College Students
Another feasible option to reduce overall insurance cost is to take advantage of discounts. Some insurance companies offer a number of different discounts to cut down on the overall cost. Many of these discounts are available specially to college-age students.
1) Good Driving Discount
The first discount commonly available to college students is the good driving discount. To be eligible for this discount, students must keep a clean driving record. This means the student has no tickets and no at-fault accidents on their record. Once one of these contingencies is voided, the discount is no longer available.
The exact discount amount and requirements are determined by each individual insurance company. But this is a discount to keep in mind and ask about when shopping for insurance coverage.
2) Good Student Discount
The second discount is the good student discount. This discount is available to students who keep a high-grade point average. The specifics will change between insurance companies, but most require students to maintain a “B” average, or a 3.0.
3) Occasional Driver Discount
The occasional driver discount is a great option for families or households with multiple students. If a family has a younger driver, perhaps a college freshman, and an older student, the younger student can be considered an occasional driver. The occasional driver still has full access to the vehicle but at a cheaper rate.
4) Defensive Driver Discount
The defensive driver discount is more difficult to come by for student drivers, but it is possible. If a driver takes a defensive driving course, available through the Department of Motor Vehicles (DMV), then they might be eligible for this discount.
This discount is only available in some states and through some insurance companies. Some companies offer this discount to older drivers, while others offer it to all drivers. Research the discount or ask your insurance provider for the specifics.
5) Affiliation Discount
The affiliation discount is offered to drivers who are members of other organizations. Many of these organizations are geared toward college students, making it a great option.
Some possible affiliation organizations include banking institutions, military, colleges, sororities and fraternities, and honor societies. Often these options are tiered and can’t be combined. It’s best to talk with an agent and select the affiliation that offers the best discount.
Insurance Complications for College Students
Searching for discounts, checking eligibility, and determining the best fit can be a lot to handle. It’s easy to see how college students and their parents get into trouble. Things can slip through the cracks, leaving students open to higher premiums or a delay in coverage.
The biggest area of complication is gaps in insurance policies. Most families are quick to make sure their college student is covered, but there are times when this isn’t enough.
Take, for example, an out-of-area school. If your student is taking the family car to school, you will have to update your insurance policy to reflect the new address. This step is often overlooked, but it can lead to a lapse in coverage and big costs.
Sometimes college students are gifted or purchase their own car. In most states, if your student decides to purchase a car, meaning the car is titled in their name alone, then that car can no longer be insured on the family policy. Covering the new car with an individual policy can be overlooked in the hustle and bustle of college preparation.
Steps to Change or Update Car Insurance
Moving a student to college is a very exciting but incredibly busy time. There are so many things to buy, pack, and sign that things can often be forgotten.
Creating a checklist can help make sure everything gets accomplished. It’s important that purchasing or updating the car insurance policy makes it on the ”going to college” checklist.
Updating or purchasing car insurance also requires its own checklist. There are a few steps that need to be completed before your student driver and their car are fully covered.
The first step is to notify your car insurance company. If your student is moving away to school, you will need to update your insurance company on a few details. Most importantly, your insurance company will need to know where the car will be primarily located. Updating your insurance company will also help you determine what discounts you might be eligible for.
Next, your insurance company will help determine if your student should get their own separate policy or remain on the family policy. This can be a difficult question to answer. For instance, in most states a student can remain on their parents’ policy if they don’t own the vehicle they drive, still live with their parents, or are a full-time student.
Staying on a parent’s policy can be beneficial to the student and family both. Normally, this leads to lower rates and ensures continued coverage.
Students who don’t take vehicles to school can benefit from their parents’ car insurance policy as well. These students will be covered if they want to drive when home on breaks or drive a friend’s car.
You’ll also want to check your state requirements for car insurance. Each state has a minimum requirement for liability insurance, but the specifics vary wildly.
If you plan to attend college out of state and take a car, then it’s important you research the insurance requirements for the state the college is in. Neglecting to do this can result in a lapse in coverage and big fines.
Next, you’ll want to check for all discounts. Many of these discounts will be identified by your insurance company, but it’s best practice to have a general idea of which discounts you might be eligible for.
Finally, practice good car choices. Many college students enjoy helping out a friend and that often means sharing vehicles. Lending your car to a friend, however, can get you both into trouble.
When a friend drives your car and an accident occurs, who is responsible can get messy. This can result in higher premiums, additional, unexpected costs for you, and even loss of insurance. You are the insured party, so it’s best to keep the car in your hands.
Final Verdict on Car Insurance for Students
So, is car insurance really necessary in college? Yes, it absolutely is. Maintaining car insurance means you will be covered in the likely and unfortunate event of an accident. Even the smallest fender benders can be helped by a solid car insurance policy. And these policies can be made very affordable for the college student.
Not only is it just a good idea, but it’s also the law in 49 US states and a requirement on all cars that still have liens against them. If you neglect to maintain your car insurance, you are at risk of a number of financial ramifications or the loss of your car.
Any financial institution can choose to repossess your car if you don’t have insurance. If they choose not to repossess, they can force-impose insurance at your cost. Plus, you’ll be on the hook for any tickets and additional fines placed by outside entities.
It’s not only a good idea to carry car insurance, but it’s a must-have item. Make sure your student is covered in all areas, including top-notch car insurance, before starting their first semester of college.Tags: Car insurance college student college students Student student car insurance