Are your children prepared for financial independence from an insurance perspective?
By Garrett Jones, Private Risk Consultant
One of the most complex insurance decisions happens when children come of age and start declaring their own independence. It can be difficult to know the best way to establish their financial identity and secure their own personal insurance for the first time. Several considerations and actions are therefore necessary to implement this new “silo of existence.”
Considerations for Your Child's Personal Insurance Program
Individually Named Insurance
As children move out to begin their careers, a transition occurs when it comes to insurance. By insurance industry standards, a child is no longer provided “named insured” status on a parent’s policy once he or she is no longer a resident. This scenario is considered a legal separation, and it is important that children secure their own liability coverage.
Choosing Appropriate Limits
A common misconception when children transition from dependence to independence is that they stand to lose little from a liability perspective. This is not the case. More commonly today, young adults stand to have judgments levied against their future earnings, not just current assets. It is therefore advisable that these young adults consider selecting their own personal umbrella coverage to protect their future financial advances.
At this entry point into adulthood, children also need to start planning for independent responsibility. Vehicle registrations, deeds, rental agreements, credit cards, etc. should have the child listed as an independent adult. And parents planning for their children’s long-term financial success should establish a separate trail of credit history once those children are out on their own.
Imagine a recent college graduate has just relocated to a new city to begin an internship for his or her career path of choice. A rental apartment has been secured, and the young adult has opted out of owning a vehicle in favor of public transportation. What unique liabilities or dangers is your young adult still exposed too? Even though he or she does not have ownership in the apartment, as a tenant, this young person may be held liable for incidents that occur on premise. Renter’s insurance is thus an inexpensive way to secure liability and personal property coverage. And even though this young adult does not own a vehicle, he or she is still exposed to auto incidents. Does this person ever ride in someone else’s vehicle? What would happen if he or she were struck by a moving vehicle as a pedestrian? Non-owned auto insurance products are available to provide security in these very situations. Like renter’s insurance, these inexpensive products provide coverage for those without automobiles, including uninsured/underinsured motorist’s coverage.
Planning for the Future
Newly independent young adults also need to start considering planning for long-term financial stability for themselves and their future families. At this age, it is beneficial, from an availability and cost perspective standpoint, to consider life insurance and long-term care options. In addition to implementing safety nets to protect against liability litigation, it is also important to plan for continued financial freedom of potential costly expenses arising out of sudden disabilities and/or death.
Planning for and implementation of these types of security blankets is not only important for the child, but for parents as well. Proper preparation provides peace of mind for those parents, knowing their family members’ well-being is protected.