Time to Take Your Adult Children Off Your Auto Policy

Dennis, the 28-year-old son of the Sullivans, had graduated from college five years earlier and had been living in another state. His parents owned and insured his car because they were trying to help Dennis save some money to start his adult life on solid financial footing.

Keeping their son on their auto insurance was a nice gesture, but when the Sullivans asked their new broker to review their personal insurance policies, they were surprised to learn that they had exposed their son to various coverage gaps. These gaps could have had a negative financial impact much greater than any insurance premium savings they might have achieved.

What didn’t the Sullivans know?

Adding a Driver Doesn’t Mean They Are Insured

Many people have been programmed to believe that listing someone as a driver makes that person an insured on their auto policy. That isn’t necessarily true. Consider the following.

When a child turns 16, the parents call their agent and add the child to their policy as a driver. In this scenario, the child is, in fact, already an insured by definition—a resident relative. Adding them as a driver only allows the insurance company to underwrite them as a driver and charge the policy owner accordingly.

But when your child moves out of the house, they are no longer an insured (e.g., not a resident relative), even if listed as a driver. Unless you either purchase a named non-owner auto policy or transfer the vehicle title into the child’s name and ensure the child has an auto policy in their name, they may be exposed to one of the following five coverage gaps:

1. Renting a vehicle. An adult child living independently must purchase rental coverage for liability and physical damage (about $50 a day for adequate coverage).

2. Driving a borrowed vehicle. If an accident occurs, insurance coverage for the borrowed vehicle would typically apply, which may or may not be enough.

3. Hit-and-run as a pedestrian. If an adult child is struck by a vehicle while walking and the motorist flees the scene and can’t be held responsible for damages, uninsured motorist’s coverage would help cover medical bills. However, an adult child will only have this coverage if they have their own insurance policy.

4. Suffering an injury while riding in any other car. A person only has uninsured motorists’ coverage as an insured on their own auto policy. As an injured passenger in any other vehicle, and without their own auto coverage, your adult child may only collect from the negligent party's policy, which may or may not be adequate. Your adult child’s health insurance may cover medical bills, but that coverage usually has a benefit cap and does not compensate for pain and suffering.

5. Sustaining a vehicle-related injury in a no-fault state. Similar to #4 above, if an adult child is injured as a passenger in a vehicle in a no-fault state, primary medical coverage would be through the personal injury protection (PIP) portion of the adult child’s own auto policy. If the child doesn’t have a policy, they only have health insurance to limit out-of-pocket expenses to deductibles and co-payments.

Protect Your Adult Child from Financial Disaster

There is a point when your child no longer qualifies as an insured on your auto policy. Verify this key point with your insurance agent. If you pass this point yet continue to allow your child to drive a vehicle that is titled to and insured by you, you are exposing them to numerous coverage gaps that can lead to financial disaster.

To properly cover your adult child and bridge coverage gaps, either purchase a named non-owner auto policy or transfer the vehicle title into the child’s name and ensure the child has an auto policy in their name. Who pays the bill is entirely up to you.

Related Reading: 5 Ways to Help Your Teen Become a Safer Driver

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.