E&O Insights: Advising Clients on Coverage Needs When Children Leave the Nest

By | September 19, 2011

With the college year again upon us, there is a good chance your agency has some clients whose children are heading off to school. Not only is this typically a busy time, it can also be an emotional time for all parties.

As a result, it is probably accurate that the various applicable insurance implications are fairly low on the list of what’s on your clients’ minds. There is also the possibility that the children have graduated from college, moved away from home and now have a new permanent address.

One of the first things parents might do is to contact the agency and ask that the child be taken off the parents’ coverage. Does this create some insurance issues that need to be dealt with? Of course … so let’s take a look at both of the above scenarios.

Homeowners and Inland Marine

When children leave the home significant insurance implications develop.

When children head off to college, coverage under the homeowners policy should apply as long as the kids were residents of the household. However, it is important to check the policy in a couple of areas.

Territory. Does coverage apply worldwide or are there some territorial restrictions? What if the child is going overseas?

Limit. Is the limit for coverage off-premises sufficient to cover the value of the belongings? What if they are living in an apartment as opposed to a dorm — does this make a difference? Unfortunately, accidents, fires, etc., do occur, and the results can be significant.

Perils insured against. If the child is going to have a laptop, musical instrument or some other valuables at school, does coverage include perils such as breakage?

A full-time student vs. a part-time student. Does this make a difference how coverage applies?

Automobiles

There is no doubt the issue of a student taking their car to college has resulted in some errors and omissions claims activity. Plus, there are some potential issues even when the child does not take the car to college.

If they do take the car to college, it is definitely wise to advise your customers that they should contact the agency so the carrier can be notified. This is especially an issue if the “college garaging” rate is higher than the “home garaging” rate. This can — and probably will — result in an additional premium, which may be the reason some customers are reluctant to advise you.

However, some states may rule this is misrepresentation or concealment. Therefore, it is important that you advise your customers proactively. If or when they contact your agency to discuss the issue, tell them that without this notification you are not confident a liability or physical damage claim will be honored.

Another concern happens when customers take their child off the auto policy when the child goes to school without the car. While this can save the parents some significant premium, there are some definite dangers. What if the college student drives someone else’s car at college? What about when they come home for the holidays and the parents forget to contact the agency to put them back on the policy? Is there coverage if the child drives the car? There are no guarantees here. Promoting and participating in this approach has significant potential for something to fall through the cracks.

When a child graduates from college and leaves the nest to pursue a career, oftentimes the first thing the parents do is contact the insurance agency and advise them to take the child off their policies. If this occurs at your agency, the first question your staff should ask the client is, “Does your child know you are taking them off your insurance and have they secured coverage elsewhere?” In some cases, the parent might comment that they don’t care or it isn’t their problem. However, it is their problem and it can definitely be your problem if an uninsured loss occurs. Obviously, you want to document: 1) that you asked the question, and 2) what the client’s answer was. It would be prudent to send the customer an e-mail or letter with documentation of this conversation.

There could be a variety of coverages that apply, so be specific with the discussion. Review each coverage — homeowners, auto, inland marine, umbrella, etc. — to ensure the customer realizes the impact of their request and the potential impact on their son or daughter if something happened.

Educate Customers and Staff

When your customer’s son or daughter leaves home, whether temporarily or permanently, there are significant insurance implications if things are not handled carefully.

Educate your customer on the various issues. Sending a letter to your customers advising them to contact the agency if their child is going away to college would be great protection if an E&O claim ever developed. Consider posting the necessary information on your Web site.

Also, don’t forget to educate your staff on this issue so that when customers call with various questions on how to handle coverage needs, your employees are able to respond in a clear, concise and consistent manner.

Topics Auto Education Universities Professional Liability

About Curtis M. Pearsall

Pearsall is president of Pearsall Associates Inc., a risk management consulting firm. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. More from Curtis M. Pearsall

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Insurance Journal West September 19, 2011
September 19, 2011
Insurance Journal West Magazine

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