Parents face a dilemma when a child is eligible to obtain a driver's license. Should they add the newly licensed child to their insurance policy? And if so, when should they add the child?
Various insurance companies treat this issue differently. Some insurance companies do not require children with a driver's permit to be added to the policy, while others do. However, all insurance companies require parents to add a child who has obtained a driver's license to the insurance policy. Some companies require the child to be added at the same time the license is obtained, while others require the child to be added within 30 days of obtaining the license.
The Serious Consequences of Not Adding a Child to Your Policy
Some parents may not want to add children to their policy because of the added expense. However, there are serious consequences for not adding a child with a license to his or her parent's car insurance policy. If your child is not added to the policy and is involved in a car crash, it is possible the insurance company will deny the claim by asserting that there is no insurance coverage for the young driver. The insurance company may also argue there was fraud/material misrepresentation and attempt to void or rescind your policy.
If your child caused the crash and there is no coverage, the young driver and all owners/registrants of the vehicle can be sued by the injured party for all damages. This can include the physical injuries sustained by others, as well as damage to the other vehicle involved in the crash, without any threshold applying.
The injured party’s insurance company can also sue the young driver and the owners/registrants for any No-Fault First Party benefits they paid to the injured party, plus the cost of handling the claim, costs, and attorney fees. This is true even if the other party was completely at fault for the crash. If you do not pay within 30 days of the insurance company's obtainment of a judgment, the registration for the vehicle and the driver’s license can be suspended or revoked. Additionally, the insurance company that pays any collision damages for the injured party’s vehicle can sue your young driver. Further, if you are listed as an owner/registrant of the vehicle that your child was driving and it is uninsured, then the insurance company can sue you for these damages.
If your young driver is injured in the crash and there is no insurance coverage, they are ineligible to receive No-Fault First Party benefits, which include medical bills, wage loss, replacement services, attendant care, and mileage. Your uninsured and injured child driver is precluded from bringing a Third Party claim against another at-fault driver for any non-economic losses. You can also be barred from making a claim against the other driver for uninsured property damage to your vehicle (also known as a mini-tort claim), even if the other driver is at fault for the crash.
Some insurance companies may choose to pay the claim of the child who has not been listed as an additional driver and/or a named insured but then may go back and re-calculate the increase in the premium had they known about the new additional driver and collect the excess premium from you.
An Economic Solution
Needless to say, the risk of not informing the insurance company of your new driver can be economically catastrophic to your family. Parents need to ask themselves whether the potential savings of not adding the child on the policy is really worth the risk of the young driver being involved in a motor vehicle crash and the insurance company denying coverage.
Adding a young driver to your insurance policy will likely increase your premium. However, a possible economic solution is to purchase an older vehicle for your child's use and obtain only PIP, liability, and uninsured/underinsured coverage for that vehicle. Since a major portion of your insurance cost is for comprehensive and collision coverage, not having these on your older car may help reduce your premium. If you have any questions about car insurance or adding a young driver, please call us at (734) 761-7282.
Michael J. Garris has also written a full-length article on this subject—Adding a Young Driver to Your Insurance.