Why "insurance fronting" for your children is a bad idea

Car insurance premiums tend to be steeper for people aged under 25 years, as they’re considered a higher risk. In some cases, parents try to reduce their children’s premiums by taking out policies in their own names.

We examine the consequences of this type of “insurance fronting” and investigate legal ways to decrease your children’s premiums in South Africa.  

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Who drives the vehicle most often?

According to Wynand van Vuuren, partner of client experience at King Price, manipulating information in a way that benefits you amounts to insurance fraud.

“Parents may claim to be the regular driver of a vehicle they have bought for themselves, but their 19-year-old, who has just attained their licence, is driving to university every day,” says Van Vuuren.

“This can make all the difference to the premium being paid – but parents should know that, if there is an incident, questions will be asked. For example, why was their child driving their car? Why was the car broken into on a campus?”

If more than one person is driving a vehicle, you should indicate who drives the vehicle most often, says Natasha Kawulesar, chief client relations officer at OUTsurance.

“This person will be noted as the regular driver,” she says. “Any other person may drive the vehicle, provided they meet the policy requirements – such as having a valid licence – and they do not drive the vehicle more often than the regular driver.”

Claims could be rejected

Van Vuuren says that if an insurer is satisfied that “fronting” is taking place, your insurance claim will be rejected.

“Your contract will be invalidated from the date that it was signed – that is, it will be as if it had never existed,” he says. “Apart from the fact that you will have no cover, you may be considered uninsurable. Other insurers won’t want to contract with you in the future as you have not acted in good faith.”

Kawulesar notes that the full cost for the repairs will also be yours. “You will be responsible for the costs of repairs to both your own vehicle and any other parties’ property if you caused an accident,” she says. “This can have dire financial implications.”

How to legally reduce premiums

“Insurers would previously look at the value of your car and how many years you’ve been driving to determine your premium, but those days are over,” Van Vuuren says. “Younger drivers can get a cheaper premium if they shop around.”

Although age is correlated with risk, this differs among young people, resulting in different premiums for the same car. For example, a 25-year-old driving a VW Polo with no previous claims could expect to pay around 20% less than a person of the same age with a poor claims record.

Similarly, a 25-year-old with seven years’ driving experience, who drives a VW Polo, could pay around 35% less than someone who’s just attained their licence and hasn’t had insurance before.

In addition, you could pay 20% less if you have a good credit score, 10% less if you live in the Western Cape rather than KwaZulu-Natal - the roads in the Cape are better and there’s almost no hail in the province - and 10% less if you have low mileage on your vehicle.

“If you’ve just completed your engineering degree and found a job, you live in an area with lower theft or accident frequency, and your car is parked inside a security complex, you’ll pay a lower premium than someone who’s still studying, uses street parking, and lives in a high-risk area,” Van Vuuren says.

He adds that having a tracking device could also reduce your premium, as could opting to drive a white car, as it has a lower accident risk.

The largest driver of your premium, however, is the value of your car – although the type of car can also influence risk. A 25-year-old driving a Tiguan Allspace versus a Golf GTI of roughly the same value could expect to pay around 15% less, for example.

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