Tell Parents to ‘Mind The Gaps’ When Kids Head to College
As legions of students head back to college this fall, parents should be mindful of gaps in insurance that can exist while their children are living away from home.
Although students attending college away from home may begin the semester as fully protected “insureds,” they can end end up with a protection gap without property or liability protection extending from their parent’s homeowners’ policy. Understanding the definition of a “full-time” student is the key to evaluating insurance protection.
According to Insurance Services Office’s (ISO) standard homeowners’ policy, an insured student is “enrolled in school full time, as defined by the school (and) was a resident of (the insured’s) household before moving out to attend school,” so long as the student is under 24.
Be aware: That means a student who drops a class or falls below the institution’s definition of full-time, can find himself in a potential coverage gap, so parents should be careful about making sure these requirements for insurance protections are met.
What’s Covered
A student’s property, if kept in a dorm room, is covered for the same causes of loss as his or her parent’s personal property, although there is a theft exclusion if the student was not at the location within the 60 days immediately prior to the loss. Normally, winter breaks would not trigger this exclusion if fewer than 60 days. But it can become a problem if the student leaves his personal property for the summer: If the semester ends in mid-May and the student does not return until mid-August, theft coverage would cease around the middle of July.
What about dorm-room businesses? I’m reminded of two brothers in my college dorm who were trained barbers. Every evening, they would set up chairs at both ends of the hall and guys would line up to get a $5 haircut. Would this enterprise meet the definition of a “business” as defined in the homeowners’ policy? The answer depends on the jurisdiction, but it’s likely that insurers would define this activity as a business, and therefore exclude any business liability.
Possible Solutions
Two of these gaps could be easily solved with a Contents Broad Form policy (HO 00 04, aka Renters’ policy). The last could be fixed using one of several endorsements. Rather than worrying over changes in full-time status, checking the calendar to find the last time the student was at his dorm, or self-insuring a potential “business” exposure, simply insure the exposures on the student’s own policy with applicable endorsements.
Eligibility for an HO-4 is not limited to apartments, rental houses or other such residence facilities. Since coverage is based on the contents, it can cover the insured’s stuff and liability anywhere he or she lives – including dorms.
There are many positives for this solution: the student has his or her own coverage and any claims are not made on his or her parent’s insurance. Plus, the agent develops a relationship with the soon-to-be independent homebuyer, car- or business-owner
Many parents are willing to provide the protection once possible gaps and parental advantages are explained. And for students older than the age limits allowed in the policy language, an HO-4 is essentially required.
Then there are the business exposures. To cover a student’s business exposures, a Permitted Incidental Occupancies (HO 04 42) endorsement can be added. If the parents choose not to purchase a separate HO-4, the Permitted Incidental Occupancies – Other Residences (HO 24 43) needs to be attached to their homeowners’ policy, listing the location of the work.
Both business-exposure endorsements extend liability protection to cover general liability exposures and losses arising out of the named operation, but there are limitations. Coverage is provided on the scheduled premises only, so if the insured leaves the listed premises, coverage ends.
Also, only general liability losses are covered, so there is no coverage for any sort of professional liability losses.
Short of attaching a home-based business endorsement or a BOP (both with proper endorsements), these business limitations cannot be overcome with standard homeowner policy endorsements.
Keep in Touch
Agents can’t know everything that goes on in their clients’ lives, but they can notify their clients of gaps and gap-closers. If an insured’s auto policy is written by the agency, the ages of every household member should be in the files. If a household member has reached college age, send a note to the client explaining that college students create unique insurance exposures that should be addressed.
This accomplishes several key things: First, it gives an agent the opportunity to close coverage gaps. It also helps build the agent-client relationship and loyalty.
Finally, notifications can be very useful in defending against any errors and omissions claim arising out of an uncovered loss.