If there is one personal insurance issue that crops up year after year, it’s the conundrum of insuring your child once they’ve obtained their permanent driver license and you’ve bought them a car. It’s not a topic of discussion – until you get the bill. Now it’s first and foremost on the mind of the panicked parent saddled with the premium invoice.
With unfailing regularity, I hear from people who are taking insurance advice from their neighbor, attorney, CPA, or best friend – but not from an insurance agent – about the proper way to insure the kid and the car. The best thing to do, say these experts, is to title the car to the child and insure it on a separate auto policy with minimum coverage limits. By doing so, in addition to saving money (the biggest concern at the time), the parents have absolved themselves from further liability involving the child and the car.
Two words: bad idea. If, for any reason (and there are many), the parents are brought into a lawsuit, there is no coverage under their own personal auto policy. The only coverage available to them will be under the child’s policy – the one with the minimum liability limits. Even once a child is considered an “adult”, usually at age 18, a lawyer can find a variety of ways to sue the parents, including vicarious liability and continuing financial dependency. The parents will have to bear their own legal defense expenses since their personal auto policy will not respond.
But, for the sake of argument, let’s assume the parents are willing to gamble they’ve taught their child everything there is to know about defensive driving and they’re willing to roll the dice in order to save an insurance buck. Up until now, it’s all about the parents. They’ve insulated themselves from liability and they’ve saved a ton of money in the process. But what about the child? There are those who claim no one would sue a minor because they have no assets. But it’s not about what the child has today: they can be sued for assets they’ll earn or inherit in the future. How will a large judgement affect an adult child’s career? Will they have to file bankruptcy? Or would they be unable to do so because a judge deems the child’s future earnings will be substantial (perhaps he’s a baseball prodigy or America’s next top model)? If a large settlement is awarded as the result of a terrible accident, future earnings of that child can be garnished. What parent wants to place that mantle on their child’s shoulders?
So the simple answer isn’t what most parents want to hear. The answer is to insure your child and the car on your policy, with you as the titled owner. There are too many things that can go wrong, leaving your son or daughter exposed to a potentially huge financial burden before they’ve secured their first full-time job. How would you feel if that happened? To do otherwise could be penny wise and pound foolish. For the sake of your child, it isn’t worth the gamble.