Buying auto insurance is straightforward if you have just one car and one driver, but the scenario can become more complex if you're in the market for multi driver auto insurance.
Auto Insurance Basics
The basics of auto insurance are actually fairly simple. If you own a vehicle you are required to have liability insurance, which will pay for property damage or personal injury if you cause an accident. Your insurance policy is a contract. You make payments to the insurance company, and the insurance company agrees to pay for damages caused during incidents that are described in the contract.
The insurance company determines how much to charge for your premium based on a combination of factors, including your driving record, where you live, and the kind of car you drive. It's not difficult to understand how it works in a household with only one driver and one car, but how does it work in households with many drivers?
Premiums for Multi Driver Auto Insurance
Since driving records helps determine premium, what happens when there is more than one driver? It depends on the company, but most use one of two basic methods.
- Some companies will charge a premium based solely on whichever driver is seen as the biggest risk. For example, consider a household with one car, an adult woman with a good driving record and a teenage son with a new license. In this situation, the policy premium will be based on the teenage son, who statistically will be the driver most likely to be involved in an accident.
- Other companies would consider each of these drivers as a part-time driver, and adjust the premium accordingly. In the household listed in the example, half the premium would be based on what would be charged for the mother, while the other half of the premium would be based on the rates for the son. This method of determining premium usually helps keep payments lower, since the costs of a high-risk driver can be offset by the savings of the low-risk driver.
Most insurance policies will pay for damages even if the driver of the car is not listed on the policy, as long as that driver has permission to drive the vehicle. This is called a "permissive use" loss. Knowing this, it may be tempting to avoid notifying the insurance company if another driver is added to the household when the new driver is young or has a bad driving record.
Although this may save some money in the short run, it can also backfire. Many insurance companies give better rates to drivers who have what is called "continuous prior insurance," meaning that they have not allowed their auto insurance to lapse. Someone who is not listed on an insurance policy cannot prove that they have had insurance in the past, and could pay higher premiums for years to come.
Households With Multiple Cars
Some families have multiple cars as well as multiple drivers. The premium is determined in much the same way in these households, but many companies offer extra discounts for these multi driver auto insurance policies. These are usually referred to as multi-car discounts.
Each insurance company sets its own requirements to qualify for these discounts. Some companies will give a discount only if the same individual is listed as the primary insured or owner for more than one policy or car in the household, regardless of who drives the car. Other companies will give a discount to all family members in the household, while a few will allow a discount for everyone insured together and living at the same address, even if they are not related.
There are many variables that come into play when multiple cars or multiple drivers are involved. Your best resource is your insurance agent, who will be able to explain what factors are considered in issuing a policy and what discounts may be available to you on your policy.