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When Your Adult Kids Move Back Home, Double-Check the Insurance

The slow economy of the past few years has exacerbated a trend that was already underway, that of adult children moving back in with their parents. A 2007 study found that one-third of people aged 18 to 34 were living in their parents’ homes. In addition to the issues this trend raises in households with regard to cost-sharing, work-sharing and personal boundaries, insurance issues arise. Home and auto insurance forms are very clear that minor children have coverage under their parents’ policies. This becomes less clear the older the children get, and it becomes ambiguous when they return home after living on their own for some period of time. Parents and their adult children may be risking thousands of dollars in financial loss if they do not handle the insurance correctly.

The standard homeowner’s policy provides coverage for the person named on the policy’s information page, that person’s spouse if a resident of the household, residents of the household who are that person’s relatives, and a full-time student under age 24 who is a relative and who resided in the household prior to moving out for school. Therefore, the policy covers parents and minor children, and it covers college students while they’re away from home. However, it is questionable whether an adult child moving back in with her parents is a resident of the household. Even courts have had trouble setting a precise definition of residency. For example, suppose a woman and her son relocate to her hometown following a divorce and they move in with her parents while she looks for an apartment. Is she a resident of her parents’ household while she’s living with them? Does it depend on how hard she’s looking for a new place? What if she is looking but falls ill and is unable to actively search for a period of weeks? At what point does she become a resident and not merely a guest? There is no hard and fast rule. In situations like these, the best way to eliminate any doubts about coverage may be for her to buy a renter’s insurance policy.

Auto liability insurance, which insures against a person’s legal responsibility for injury or damage to others, has a few other wrinkles. The standard policy covers the person named on the information page, the resident spouse, and any family member for the use of any auto. The policy defines “family member” as a person related to the named insured person by blood, marriage or adoption and who is a resident of the household. Therefore, the woman in the previous example has coverage for the use of any vehicle if she is a resident of her parents’ household (other policy provisions eliminate coverage for certain vehicles.) However, even if she is not a resident, she has some coverage: The insurance covers any person while using a vehicle listed on the policy if she is using the vehicle with a reasonable belief that she has permission. If she is temporarily living with her parents and her father loans her his car to run to the store, she has coverage. However, she does not have coverage while driving a vehicle she owns if her father’s policy does not list it. Again, the solution here is for her to carry her own auto insurance; this makes moot the question of whether she is a resident of her parents’ household.

Insurance companies have designed policies to easily fit households with parents and minor children, but they did not have returning adult children in mind. Because these situations can be complex, it may be best to consult with a professional insurance agent to determine the right approach. The wrong decision can result in a nasty surprise when a claim occurs.

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