Part 2: Beware of coverage gaps for your young adult children
With college expenses and cost of living on the rise, it’s not uncommon for young adult children to remain on their parent’s insurance policies well into their 20s or even early 30s. It is, therefore, important to understand where gaps in insurance coverage may exist and how to address them.
Auto Insurance
Most auto policies provide coverage for family members who—for the purposes of insurance—are typically defined as persons related by blood, marriage or adoption who are a member of your household. A gap in coverage could, therefore, exist if the parent owns the vehicle and maintains insurance coverage but the child possesses the vehicle and no longer lives with their parents.
If the child owns the vehicle, or co-owns the vehicle with one of the parents, there could still be a gap in coverage if the child isn’t listed as a Named or Additional Insured on the parent’s policy.
Homeowner Insurance
Most homeowner policies will provide property and liability coverage for residents of the household who are also relatives of the policyholder, and coverage typically extends to full-time students living away from home as long as they maintain their parent’s address as their primary address (likely the case if the student lives on-campus). Most policies will limit coverage for personal property away from the parent’s primary residence (typically up to 10% of personal property limits as defined in the policy), so this may need to be reviewed if the student has expensive electronics, bicycles or instruments.
Most insurers will place age limits on coverage for full-time students (typically age 24 to 29), so a coverage gap could exist in the case of a student who is still reliant on their parents in their early 30s.
Full-time students who live off campus and no longer maintain their parent’s address as their primary address, and students who are only enrolled part-time, will not be covered under their parent’s homeowner policy and therefore will need to obtain a separate renter’s policy to cover their personal belongings.
In the case where a parent buys a home or condo for their adult child, or rents an apartment for them, the coverage will not likely extend from the parent’s homeowner insurance policy to the child’s residence. As the primary resident and likely only name listed on the lease or deed, the child would likely be required to obtain their own primary insurance coverage.
Umbrella
Gaps in auto or homeowner coverage can translate to a gap in the Umbrella policy, which is designed to provide excess liability coverage above and beyond base limits in auto, home or renter’s policies. Courts have the ability to garnish future wages, so an adult child who currently has limited assets or income could still be on the hook for large losses if adequate coverage is not in place.
Conclusion
Our insurance needs change frequently, especially when children go away to college. Periodic reviews are essential so your insurance agent can evaluate your exposures and address any potential gaps in coverage for you and your adult children.
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