Does My Auto Insurance Cover the Kids After They’ve Moved Out?

Parents of teens and young adults know the pattern all too well. A child hits the magic age when he can finally get a learner’s permit to drive. After multiple tries, he passes the driving test and gets his license. Mom and Dad open their wallets and tell the insurance company about the new driver. Their insurance policy covers him during high school, while he’s in college, and while he’s back home. At some point, however, he moves out on his own for good. Maybe he moves to a city with convenient mass transit, and his job doesn’t pay well enough for him to buy a car, so he goes without.

One day, he asks out that girl in the accounting department he’s been flirting with for a month. Meeting her at a subway stop just won’t do, so he grovels at the feet of the best friend with a new set of wheels. The friend, though appalled at the shameless pleading, agrees to lend him the car. Young Romeo picks up his date, pulls out into traffic, and rear-ends a Lexus at the first red light. Flustered, he pops it in reverse and backs hard into the BMW behind him. Two questions immediately come to his mind: 1) Will she still want to go to the movie? and 2) Does he have insurance coverage for this little adventure?

Bad news for Romeo: His date takes a cab home and his friend sort of forgot to pay his car insurance bill; the insurance company cancelled the policy. Then he gets an idea: It hasn’t been all that long since he lived with Mom and Dad. Maybe their insurance will pay for the repairs.

Every insurance policy has specific descriptions of who the insurance company will cover. The standard Personal Auto Policy published by the Insurance Services Office says that the person whose name is on the policy and any “family members” have coverage for the ownership, maintenance or use of any auto. Maybe Romeo’s in luck.

Maybe not. The policy also has a specific definition of the term, “family member:” A person related to the person named on the policy. The family member must be related by blood, marriage or adoption and must also be a resident of the other person’s household. Romeo has moved out of his parents’ home, which is why he got the job, met the girl, borrowed the car and had the double dent-fest. Is he still a resident of his parents’ household?

Chances are, the insurance company will decide he’s not, and it may have the law on its side. A California court ruled in 1975 that an adult son who lived in a separate apartment on his parents’ street and who relied on his parents for financial support was not a resident of the parents’ household and not entitled to coverage under their auto insurance.

Circumstances may change the answer. Courts have recognized that college students, though they live elsewhere the majority of the year, are still residents of their parents’ household. A self-supporting child who lives in her old bedroom and pays rent to her parents also qualifies as a resident.

It’s when the move away from home looks permanent that the break in coverage may occur. Even if she doesn’t own a car, she should consider buying an auto insurance policy with a special coverage called Named Non-Owner Coverage. This will cover her liability for injuries or damage she may cause while renting or borrowing a car. Coverage will apply after other available insurance (such as the car owner’s coverage) is used up.

And, while it wouldn’t have salvaged Romeo’s date, it would have saved him a whole lot of money.

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