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Why car insurance for young and/or inexperienced drivers is so expensive



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Car Insurance for New Drivers

As though motoring in Singapore is not expensive enough, young and/or new drivers also have to pay higher insurance premiums.

How is This Fair?

Fundamentally, insurance companies function by spreading risk – drivers pay for insurance in case they have a crash, and if they do, they can claim against that policy. The more instances of insured drivers who meet an accident, the higher everybody’s premiums will be.

Unfortunately, drivers aged between 18 and 25 are more likely to make an insurance claim than other drivers, and their claims costs may be a few times higher.

This leaves insurance companies with a choice: Either increase all premiums, or increase premiums for the drivers most at risk. They tend to choose the latter. Making more mature or experienced drivers pay for the mistakes of younger, less experienced drivers is unfair as well, after all.

Lower Premiums

Still, drivers can keep premiums down by shopping around, and by minimising the risk they represent for insurers.

Opting for higher excess on their policies, where available, allows drivers to pay lower premiums, as long as they pay a certain amount towards the cost of repairs in case of an accident. The higher the excess, the lower the premium.

Obviously, your personal financial situation dictates how much excess you are able to bear.

At Budget Direct Insurance, we realise that you may be young and experienced, or not young but inexperienced. In the interest of fairness, we separate the two, unlike most other insurers. This means the extra excess on your policy is lower than it would be if the two were combined. Here is a simple illustration of how excess works in the event of a claim:

Calculation of the total Excess payable on claims

The total Excess you have to contribute towards a claim is the aggregate of the Policy Excess and any Additional Excess(es) which apply.

Example

If a claim involves an Unnamed Driver who was 24 years old and was holding a valid driving licence for less than 2 years, the total Excess payable would be S$3,600.00 computed as follows:

Policy Excess S$600.00
Unnamed Driver below 25 years old S$1,500.00

Unnamed Driver with less than 2 years’ valid driving licence

S$1,500.00
Total S$3,600.00

Note: Always refer to your insurer’s policy document on different levels/types of excess.

Another way to reduce insurance premiums is to opt for less coverage. Third Party Only and Third Party Fire and Theft policies carry lower premiums than Comprehensive coverage.

There are some caveats though. If your vehicle is subject to finance, the financial institution will likely insist on Comprehensive coverage, for instance. And as the name suggests, Third Party policies cover only damage or injury caused to others – damage or loss of your vehicle would not be covered under these plans.

Budget Direct Insurance does offer optional add-ons to all its policies that allow you to customise your coverage to suit your needs. Some of these can actually save you money too – on Comprehensive plans you can save money if your vehicle is used in Singapore only, for instance.

Named Driver plans can also reduce premiums. These policies only cover drivers specifically listed on the policy.

No Fronting

Some people think they can get around the increased costs of insuring younger drivers by ‘fronting’, or insuring the vehicle in their own name, and adding the younger driver as a named driver.

If the young driver is only an occasional driver of the vehicle, adding him/her as a named driver is allowed. However, if they are the primary driver of the vehicle, the policy will be invalidated. In this case, you are not only responsible for repair costs, but you may also be blacklisted by insurers. Fronting is a form of fraud, after all.

Experience Matters

If you think about how insurance works, it is obvious that if you make claims, you’re more of a risk for the insurance company. Insurance companies reward drivers who do not make claims with a No Claim Discount (NCD) of up to 50% off their insurance premiums, which is a big incentive to drive carefully.

Young and/or inexperienced drivers need to build their NCD from scratch, and this is reflected in premiums – typically a younger driver’s insurance premiums are nearly two to three times higher than more experienced drivers who haven’t made claims (such experienced drivers may enjoy a No Claim Discount of up to 50%). Remember – on average, young drivers’ claims costs are a few times higher, so it’s reasonable to expect the corresponding risk to fall on them, which is the case for almost all insurers.

Inexperienced drivers can help reduce their insurance premiums by choosing less risky vehicle models. While a relatively staid Toyota Vios may not raise the heartrate as much as a sporty Subaru BRZ, an inexperienced driver can save nearly $600 a year on Comprehensive insurance by choosing the former.

Experienced drivers with 50% NCD may think the sportier Subaru is a good choice – their policy is only a little over $100 more expensive annually.

Build your experience – and NCD – in the less exciting car during the start of your driving journey, and save up to enjoy the car of your dreams later, for less. As you accumulate more years of driving without making a claim, you receive a higher NCD - more discount off the full-priced premium. However, once a claim is made under your policy, an NCD reduction of 30% per accident can be a steep one to bear. So all drivers need to be mindful of the potential costs - even the experienced ones.

Naturally, the more expensive the vehicle’s value, the more expensive it will be to repair in case of an accident, so the higher the premiums will be. If your dream car is a Rolls-Royce or a Ferrari, be prepared to pay higher premiums. And if you are young or inexperienced, be prepared to pay even more.

That being said, by choosing your insurance coverage carefully, and making some smart decisions, you, as an inexperienced driver, can start with a lot of savings now – and set yourself up for a more affordable future.

What car insurance premiums look like for…

a 30-year-old SINGLE male with at least 2 years of driving experience, at 10% NCD driving a 2017 Toyota Vios 1.5

Comprehensive Car Insurance starts from $1,193.27*

Third Party Only Car Insurance starts from $946.30*

*Premiums shown are indicative. Actual premiums may vary based on various factors.


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