Kids, Cars and Insurance

Mar 07, 2011

Its among the most commonly asked questions by parents of teenagers to insurance agents: we just bought our teen a car, so should we put the car in the teens name and let them insure it separately or keep it in our name and insure it on our policy? And while I don't mean to sound like a politician, there are compelling reasons for both courses of action depending on your individual approach to risk.

Ultimately, the issue is insulating you from the dangers of teenage driving that you as the parent become responsible for. An accident is every parents' nightmare, made worse when the lawsuit papers show up a few days or weeks later from Dewey, Suem & Howe PA. So what's the right answer?

It depends. What the parent is asking  in reality is an economic question. What they really want to know is 'which is the cheapest way to go?' Cheapest in this article is surely a relative term. What's the 'cheapest" way today may not turn out to be later on. Certainly, placing the car in the teens name and having them buy their own policy has some merits. It may teach them some sense of responsibility as a vehicle owner. Purchasing their own policy, or assisting in it, exposes them to a business transaction that forces them to pay attention and act responsibly as well as having to meet the monthly payment obligation. However, is there any doubt whether or not the teen, when faced with making coverage decisions,  will chose the least expensive route? Even if you're assisting them, the whole premise of this method is to save money, right? So coverage sacrifices will most likely have to made to keep costs down. And this is where the rubber meets the road. Simply stated, vehicle insurance follows the car...coverage purchased on a car stays with that car. Further, car insurance policies contain an exclusion that in, so many words, excludes liability for vehicles 'regularly furnished' to you. Simply, if there's another car kept at your home regularly (your teens car) and its NOT insured on your (parents) policy, then its NOT covered by the parents insurer. So, teens car is parked behind parents...parent wants to run a quick errand, takes teens car and has an accident. The insurance that responds will be the coverage on the teens policy, exclusively, as the parent's policy will likely exclude it. Same works in reverse...if teen drives parents car then parents insurance is their exclusive coverage. Usually, not an issue if, we assume, the parents have chosen a comprehensive package of coverage with higher limits than their teen did. Further, if teen is involved in a serious accident and is sued...a suit that likely nams both the teen AND the parents, the only insurance protecting the entire family is the teens policy. Why, same reason just mentioned ---the teens car is regularly available in the home and thus excluded from the parents policy. Policy language does vary from one policy to the next, so you should consult with your agent for exact wording.

Instead, I recommend keeping the car in your (parents) name as long as the teen remains in the home. This way, there are no worries about coverage gaps for vehicles that are regularly available and the teen receives the full benefits of your policy and all of its available coverages. They benefit from your buying power and credit rating and receive, theoretically at least, coverage limits they likely wouldn't have chosen for themselves. You rest easier knowing that your teen is as adequately covered as you are.

So what about when the teen turns 18?  Even after the age of 18 mom and dad can still be “on the hook” so to speak. Suppose that Junior turns 18 (or 28, or 38, or 48) and still lived at home. One Saturday dad asks Junior to run a few errands and gives Junior a list of things to accomplish. They include using Juniors car and picking up the mail from the post office, stopping by Home Depot, making a grocery stop at Albertsons, and returning the yard tiller that was rented from the Rent-All Shop. On the way from Home Depot to Albertsons Junior runs a light and injures someone. It's possible (and likely) that mom and dad would be sued since Junior is “on a mission” for them. (The auto policy refers to this as “anyone legally responsible for the conduct of an insured.”) The principle here is the same as a situation where an employee uses his auto for business purposes to benefit the employer, such as a real estate agent transporting potential buyers. Just like the real estate agent is “on a mission” for the real estate agency, so too is Junior “on a mission” for mom and dad. The good news is that in such a situation Junior's policy does defend mom and dad as “a insured.” The bad news (a double whammy) is Junior has low liability limits, and mom and dad's policy will not defend them.

The bottom line is, as long as the teen can be tied to mom and dad they can be sued and the only defense is Juniors auto policy. So as long as Junior is in the house mom and dad should have concerns about being sued and should insist that Junior carry liability coverage adequate to protect them should they get sued. Not likely to happen, but a recommendation I must make nonetheless.

So, Title the car in mom and/or dad's name and insure it on your policy. Following this recommendation will result in the best coverage for all family members, no coverage gaps, and in most cases will be the least expensive way to provide coverage.

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