Each year, almost 16 million people in the United States, most of them between the ages of 18 and 22, leave the comfort of their homes to attend college. They will dive into textbooks, exams and other activities designed to prepare them for the “real” world. Or at least that’s what their parents hope they’re doing….
There’s almost nothing some parents won’t do to help their kids prepare for this journey to enlightenment, spending billions on supplies, clothing, furniture and other items to make the endeavor as comfortable as possible. Unfortunately, something that is often overlooked during this exciting time is insurance coverage.
Homeowner’s insurance policies use residency as a key factor in deciding which people will have the benefit of coverage. The good news for parents is that most jurisdictions extend residency status to kids, even while they are away at school for months at a time. This allows college students to remain covered by their parents’ home insurance policies.
This article is a word of caution to parents: don’t get too comfortable. There are gaps and limitations that are created when a kid goes away to school which can prove dangerous to students and parents if they are overlooked.
Most college students do not own a home; therefore they usually rely on their parents’ home insurance policy if coverage is needed. The home insurance policy is designed to cover two major exposures: losses to property owned or used by an “insured” and legal costs arising from liability of an “insured.” When a kid goes away to school, potentially harmful gaps are created for each exposure.
Who is an insured?
While living at home with their parents, children are considered insureds and are covered by the home insurance policy. A kid who goes away to college may still be considered an insured; however, this important status can change immediately depending on a few factors specifically listed in the policy.
Many home insurance policies state that a student enrolled in school must have lived with his/her parents before moving out to attend school. If so, the student is still an insured under the parents’ policy if:
If the student drops a class, could they also drop their “insured” status on their parent’s policy? If the student is on the 7-year plan or attends graduate school, could their 24th birthday remove their “insured” status on their parent’s policy? In both cases, the frightening answer is “Yes.”
If the kid is no longer an insured, this means they no longer can access their parents’ home insurance policy for losses to their stuff or- what’s much more frightening—to pay potentially devastating legal costs stemming from a liability claim.
Losses to Property (“Stuff”)
While most college students do not own a house, virtually all own personal property—clothing, accessories, electronics, furniture and sporting goods, just to name a few. A home insurance policy will cover such items if they are damaged by a covered loss such as fire, smoke, windstorm or vandalism. They are also covered if stolen from an apartment, dorm or vehicle.
The value of the student’s stuff could be thousands of dollars. The problem is that most home insurance policies limit coverage for the student’s stuff while kept at the apartment or dorm to 10 percent of the policy’s personal property (sometimes called “contents”) limit. For example, consider a parents’ home insurance policy with a personal property limit of $50,000. Their kid is living on campus when a fire starts in the apartment and burns most of the kid’s clothing, furniture and other items. The total value of the damaged items is $10,000. Unfortunately, the most the policy will pay is $5,000.
Another function of the home insurance policy is to pay costs related to a claim or lawsuit against an “insured” for bodily injury or property damage. Such claims are scary because their total cost is unpredictable, particularly in cases involving bodily injury. Such claims could range from thousands to millions of dollars.
For the kid away at college to have access to his/her parent’s liability limits, he/she must be an insured, as discussed above. If the kid is not an insured, he/she will be personally liable for paying the costs of any claim or suit for which he/she is legally responsible. When purchasing liability limits on their home insurance, parents must consider the reality of many of the activities that take place on and off campus and the potential liability their kid could face if the worst happened; binge drinking, parties and other events historically pervasive around colleges all contribute to the possibility of a personal liability claim. If the kid is still an insured, parents should consider purchasing high limits of liability coverage as well as an excess liability or umbrella policy. Such policies are often available for little cost and can provide a much larger cushion of coverage for an unpredictable and expensive liability claim or lawsuit.
Jon Jepsen is a Trusted Choice® insurance professional and can help you evaluate your family’s exposure and discuss possible solutions such as renter’s insurance, amendments to your home insurance policy and options to increase your limits of liability.
Jon Jepsen, CIC