Best Ways to Teach Your Kids About Car Insurance

Mother teaching her daughter how to drive

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Kids are curious about pretty much everything, and they're going to let you know it with endless "why" questions. As my mother used to say, if you’re old enough to ask, you’re old enough to know the answer. The questions usually begin with watching you do something like paying the bills. So, if you are writing out the check for your monthly insurance premium and your son or daughter asks what you are doing, tell them.

They're bound to ask you what insurance is. And there's your opening. The thing is that, at an early age, your explanation is going in one ear and out the other. And understanding what auto insurance is probably isn't too important to a third grader. By high school, though, it's a different story. One thing is certain, you probably shouldn't let your child get his or her driver's license before they have a clear understanding of all of the responsibilities that go along with it, and that includes insurance.

What to Teach When Explaining Car Insurance

Your answer will, of course, depend on how old the child asking is. For a child under 4, you could simply explain that cars are very dangerous and risky, and you pay an amount of money every month so that if bad things happen to the vehicle or people inside of it, you don’t have to worry about paying for the damages. For more sensitive younger children, you may simply explain that you spend money every month so that the government will let you drive your car on the road (which is also technically true!).

The trick here is that you want your kid to take to heart the main messages of learning about car insurance, which is: the real price of driving is much more than just the cost of a few gallons of gas -- and getting into an accident, even a small one, is expensive. Beyond that, it's a question of the mechanics of how insurance works, and that's where you need to be careful not to lose them in the details.

Start with the basic idea that insurance, any type of insurance, is about pooling the dollars of many people to pay for the damages to a few. Then you should cover the basics, which include:

Types of Coverage

Especially liability coverage, which is required in almost all states. Liability coverage pays for the damages to others resulting from an accident that is caused by the insured. Also, distinguish liability coverage from comprehensive, collision and uninsured motorist coverage.

Liability coverage is often stated in a form like this: 20/40/10. It is shorthand for: $20,000 personal injury coverage per person, per accident; $40,000 personal injury coverage total per accident; and $10,000 property damage total per accident. The actual amounts differ by state, but the explanation works for all of them. You should also explain what a deductible is and why it's essential.

Filing a Claim

Finally, walk your kid through the process of filing a claim. It is important in case they get into an accident, and you aren't around. Make sure he or she understands what to do at the accident scene (call the police, take pictures, exchange info with the other parties, call you) and then how to follow through with the insurer.

How to Teach Car Insurance to Kids

You must factor in several things here such as age, maturity and learning style. Some kids will learn better by explanation, some by demonstration. You just have to know what works best with your child. Some experts suggest using Monopoly money as a tool; some recommend going through your insurance contract. Whatever works to get the information across in a way that sticks.

One last suggestion: possibly the best way to teach your older children about car insurance and responsibility at the same time is to have them pay the extra cost on your premium for adding them as a driver with their allowance or after school/summer job money. If the privilege of using the family car comes with a price tag, they're bound to learn all about car insurance very quickly!