Congratulations, it's a new driver!
You knew this day was coming. You’ve had 16 years to prepare for it, but still it snuck up on you. You really thought you were going to be alright when it actually happened, but no matter how your friends warned you, it still came as a shock when you had to make that call…
Doug, one of my clients just called; his son DJ is 16, getting his drivers license in a week, inheriting his grandmothers retired Honda and wants to take a job to help pay for the new expenses. After congratulating Doug on surviving the driver training experience I began to help him to understand all of the ins and outs of DJ’s new status.
In New Hampshire, in order to get your license before age 18 you have to take driver training so DJ is automatically eligible for that credit until he turns 21. DJ has struggled, but currently maintains a “B” average in school so he also gets the good student credit as well. As long as he is a full time student under 25 years old and maintains a “B or 3.0 GPA” he will receive that credit.
Where to insure him is the next question… If DJ registers the Honda in his name only, (check with DMV, in some states you must be 18 to register a vehicle solely in your name) than he must insure the vehicle on a policy in his name, and lose those extra credits his parents are receiving that he isn’t eligible for on his own (like multi policy and multi car discounts, 1st accident forgiveness, renewal credits, etc.). If he adds one of his parents to the registration, he can insure it on the family policy and save - probably a lot in annual premium as he is eligible for the policy credits Doug and Judy are already receiving. “But shouldn’t he have his own policy so he can have lower liability limits, he’s a kid, what assets does he have to protect?” Doug asked. I explained to Doug that the courts would look at DJ as a household member and seeing that his parents carry good limits as well as a $1,000,000 Umbrella policy, would want to know why as prudent parents, they didn’t require DJ carry the same high limits. And while DJ may not have much now, the courts could take any college savings in his name or even place a lien against future earnings. It will be hard enough for him to pay off school loans with his first “real” salary. Try it with 10 to 15% of it going to someone for a judgment 6 to 8 or more years in the past! If DJ is on the family auto policy, he is also on the Umbrella policy and has that extra coverage as well.
One way to keep DJ’s insurance bill lower would be to insure his car for liability only. The most expensive coverage for a teenager is collision on a newer car. So if Grandma’s Honda is older, or a gift, weigh the cost to add collision against self insuring it for damage you cause in an at fault accident.
Finally, let’s talk about the job. Judy is a realtor and plans to hire DJ to set up signs, fill the little boxes with copies of listings, update pictures of her listings, pick up party platters for open houses, and any other jobs she can find for him. DJ vehicle needs to be insured for business use. It’s a little more expensive than commuting to work but being accurate now will save a lot of hassle if he has an accident when he is working.
I gave Doug and DJ a lot to think about. Now, when they call back next week they will have a better idea what they need to protect DJ and the rest of the family for that next milestone, his first accident!