Insuring Your College Student

college-studentFall always seems to be a hectic time of year. Summer vacations are over, the kids are back in school, and some parents are sending their young adults off to new adventures at college. Sending your young adult off to college involves a mountain of options to consider.

The college years can be a scary time for parents, and we probably don’t know half of what our young adults face today. Several challenges and hurdles stand between you and making sure you and your college-aged children are properly protected. I hear so many claim stories about liability limits being paid from a parent’s policy because of the foolish actions of a young adult. I know, I know, it won’t happen to you, but let’s be prepared if it does.

When attorneys line up to sue, they sue everyone in the area. If your child is in wrong place at the wrong time, it could cost you your life’s savings. What happens if a fire is accidentally started in an apartment complex and someone is injured? How much insurance would it take to protect your assets? Accidents and bad decisions happen all the time. I want you to consider several factors when choosing a policy for your young adult dependents.

Consider where they are residing. Is your college student living in the dorm or an apartment? Most insurance companies extend personal property (your stuff) coverage off premises from your home. This extended amount should provide coverage for your student’s belongings while they are away from home.

If your college student is living in an apartment, most apartment management companies require a separate renter’s policy. If you are required to purchase a renter’s policy, you need to follow a few rules. If your name on the lease, make certain you are listed as a named insured. If your name is not on the lease, you do not need to be listed on the renter’s policy. I actually like having a separate renter’s policy for your young adult student. The policies are very economical ($20,000 for $150 annually) for this extra layer of protection.

Make certain your policy specifies replacement cost coverage and not actual cash value. An actual cash value (ACV) policy pays a depreciated amount if your items are damaged or stolen. A replacement cost (RC) policy replaces the lost items at today’s prices. RC policies can be much more beneficial at claim time. Although an ACV policy usually costs half the price, it might be worthless when a claim occurs. ACV policies pay only a small percentage of the value of an item depending on age of the item.

I see so many 800 numbers sell ACV policies. A client without in-depth insurance knowledge calls the 800 number and gets sold a cheap policy. Unfortunately, the client only realizes the inefficiency of the policy at claim time. Then they discover that they don’t have enough coverage to replace their belongings. If you read my blog regularly, you’ve heard me say time and time again that insurance is a complex legal contract. You need an agent who cares enough to discuss your needs fully, explain the fine print, and draft a policy that adequately protects you.

Also, be sure you properly estimate the amount of coverage need to replace all the contents of your young adults’ apartment. Remember, you are calculating the replacement cost of the items and not the current worth. The fact that the items might be old doesn’t factor in when you are trying to replace them. Your coverage amount should be high enough to replace all items as new.

You should also complete an inventory of the contents (belongings) of your college student. Without a full inventory how will you prove to the insurance company the items that were lost, damaged or stolen? I recommend taking pictures as opposed to video. An insurance adjuster can “zoom in” to see what is in the picture if they have questions regarding an item. Smartphone inventory apps easily store images and details about your property. Receipts work well also. It is not necessary to have serial numbers for an insurance report—although police departments love that information. Take a picture of every room and open every drawer in each room. If you are paying for a policy, you want to get your money’s worth. Insurance companies will pay you for what you can prove. I’ve had clients loose thousands of dollars because they did not complete the inventory. At claim time, the onus is on you to prove what you owned.

If you purchase a renters’ policy, you also want to have the maximum liability coverage available. Liability coverage protects your assets if someone gets hurt, and you are sued. Often the maximum liability limit is $500,000 and you need the maximum. If you get an agent who offers less than $500,000 in liability coverage, get a new agent. Agents want to sell you $100,000 in liability to save their bonus payments not to protect you. I’ve seen agents advise clients to make their child independent and choose much lower liability limits. If you are supporting your child through college and count them as a dependent, you should always choose high liability limits. Are you surprised to hear the difference in cost between $100,000 and $500,000 in liability is usually less then $30 per year? It’s a no brainer!

If you keep a college student on your homeowners policy, consider purchasing an umbrella policy. An umbrella policy gives you an additional one million in coverage above your auto and home insurance should a liability situation occur. Umbrellas are relatively inexpensive for the additional coverage provided.

If your child takes a car to college, make sure you change the garaging address of the car to the student’s new address. This change in car location and use definitely changes the risk for the insurance company. If your child does not take a vehicle to school, you need to notify your insurance professional that your child is away at school. Most companies do not give a discount unless the child is more than 300 miles away. Each insurance company is different, so talk with your insurance professional. You may be able to remove your student from the policy or at least make them an occasional driver which should reduce your rates.

Remember to let your student know that good grades matter when it comes to auto insurance. If they can maintain a B average or above, significant discounts for auto insurance apply.

Discuss the use of the car by other students. Peer pressure is powerful. Your student might find it difficult to say no when asked to loan the car to friends. If a car is loaned, you are liable for any injuries or property damages incurred. I highly advise having a serious discussion with your college student about loaning out a car.

One non-insurance consideration for your new college student is establishing a power of attorney for them. What if they are injured in an accident and decisions need to be made about their care. If they are of majority age, you will need the power of attorney to handle those types of situations. Consumer Reports also cautions that HIPPA privacy rules can prevent a parent from accessing medical information about their college-aged children. Both a durable power of attorney and a healthcare power of attorney are necessary if you need to make decisions in emergency situations.

There are many things to consider as your young adult ages. Sitting down with your insurance professional for a thorough account review, can help you make certain you have the best coverage possible for your unique situation. Claim time is the wrong to realize something on your insurance plan was missed!