Is your child approaching an age where they have a driver's license and need a vehicle to get themselves to work, school, or extracurricular activities? While a car can offer a lot of freedom, the initial cost of a first vehicle can be a prohibitive expense for a young driver. As a parent, you might wonder if gifting your used vehicle to your child is the right move. Keep reading to learn what you need to know before giving a car to your child.

What Is the Benefit of Gifting a Vehicle?

Gifting a vehicle to your child instead of allowing them to borrow it gives them full responsibility for the vehicle, which may help them establish independence and credit. A gifted car allows your child to register and insure the vehicle in their own name, potentially making them more accountable for upkeep, maintenance, and driving habits.

While a gifted car can feel like a huge relief for your kid, it can also be something they take for granted if they didn't have to work for it. Some parents choose to make the car a gift while keeping certain strings attached, like keeping high grades, making smaller car payments to them each month to cover part of the value (which could be held back for emergency repairs), or keeping the car in quality shape, to ensure they see it as a responsibility and privilege.

Depending on where you live, gifting a vehicle may still require paying taxes, covering title transfer fees, or changing insurance. Because of this, some parents may prefer to maintain ownership until their child is financially prepared to handle all vehicle-related responsibilities.

How Could Gifting a Vehicle Impact My Insurance?

It's a great idea to talk to your insurance representative before making any ownership changes to see how your policy coverage might change. Here are a few things that could come up.

Personal Liability

If your child is the registered owner, any claims or legal actions related to the vehicle would typically fall under their policy rather than yours. This may be beneficial in separating financial liability, but it also means they need to ensure they have adequate coverage for their situation and according to state law.

Insurance Coverage

If ownership is transferred, your insurance policy may no longer cover the vehicle, requiring your child to secure their own insurance. This could lead to different coverage options and potentially different premium rates, depending on factors such as their age, driving history, and the type of vehicle gifted.

Insurance Cost

If your child is a young driver, their insurance policy may carry higher costs due to increased risk factors associated with less driving experience. Some insurers may offer discounts if the vehicle is registered in your name and kept on your policy, but this depends on individual insurance providers and state regulations. Additionally, if your child moves out of your household, they may need a separate policy, as most insurance companies require listed drivers to reside in the same home.