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Boomerang Kids
Mike Edwards |
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Abstract
In 2005, there were 22 million adult kids living at home, compared with 17 million in 1970. An estimated 14% of U.S. family households had at least one adult child living at home. Reports indicate that 65% of recent college graduates had moved back in with their parents. The $64,000 (or more) question is, how are they insured?
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 "In a Personal Lines Department meeting last week, the subject of “Boomerang Kids” came up. These are kids who are over 18 that have moved back home with their parents, usually following job loss, divorce, etc. Given the state of the economy, the price of gas, and so forth, this is probably not unusual. What are the insurance issues for both parents and kids?"
 “Home is the place where, when you have to go there, they have to take you in.” The great America poet Robert Frost’s immortal line shows that this is an age-old issue. And recent U.S. Census figures illustrate that the trend has increased in recent years. In 2005, there were 22 million adult kids living at home, compared with 17 million in 1970. An estimated 14% of U.S. family households had at least one adult child living there as of 2005. One factoid very relevant to your question is that in 2005, reports indicate that 65% of recent college graduates had moved back in with their parents (probably not permanently, let’s hope!).
A study published by the Russell Sage Foundation in December 2007 estimated that approximately 34% of 18 to 34-year-olds were living with their parents. In fact, sociologists have coined the phrase “open nesters,” contrasted with “empty nesters,” as this phenomenon continues to generate more study. Certainly, a number of social and economic factors influence this trend.
Here are some of the insurance issues. For the following discussion, assume Jack and Jill are Mom and Dad, Jillette is their 25-year-old daughter, and Jack, Jr. is their 17-year-old son. Jack is a high school senior who has always resided with Mom and Dad. Jillette is a college graduate who recently moved back in with Mom and Dad, after living on her own for several years.
HOMEOWNERS POLICY
Insureds. For Section I Property and Section II Liability & Medical Payments, the definition of “insured” includes anyone who is a “resident relative.” Neither term is defined in the policy. At the time when Jillette moves back in with Jack and Jill, through choice or circumstance, her status as an “insured” in their Homeowners Policy is not clear cut or automatic. In fact, there is a considerable body of jurisprudence dealing with this issue.
For example, if Jill moves in with Jack and Jill for a month or two awaiting the start of a new job, or graduate school, there is some doubt about her residency status. In contrast, if she intends to live with them for the foreseeable future, she would have a stronger argument as to residency. The jurisprudence is replete with endless variations on this issue of when residency exists.
To illustrate how uncertain the term is, consider this excerpt from one court case wrestling with determining residency: “The word ‘resident’ is flexible, elastic, slippery, somewhat ambiguous, obscure, and nebulous in meaning, has many definitions, and is difficult of exact or satisfactory interpretation.”
In situations where there is doubt about Jillette’s residency status in Jack and Jill’s Homeowners Policy, the safest course of action is for her to procure a policy in her own name – HO-4 in this case. See further discussion below.
Coverage C – Personal Property. Jack and Jill’s Coverage C applies to “personal property owned or used by an insured while anywhere in the world.” Thus the personal property of Jack, Jill, and Jack, Jr. is covered worldwide. If Jillette has residency status, her property is likewise covered.
If she is not a resident, there is still limited coverage for her property under Jack and Jill’s Coverage C, as follows:
After a loss and at your request, we will cover
personal property owned by:
a. Others while the property is on the part of
the "residence premises" occupied by an
"insured"; or
b. A guest or a "residence employee", while the
property is in any residence occupied by an
"insured".
As a nonresident, her personal property is covered under their policy only while the property is at their home, or while she is a guest with them someplace else, such as on vacation.
Coverage C Limitations. Much of the current literature on “open nesters” indicates that many parents charge their adult kids room and board. Jack and Jill’s Homeowners Policy contains the following limitation: “We do not cover property of roomers, boarders and other tenants, except property of roomers and boarders related to an "insured";
Luckily for Jillette, even though Jack and Jill charge her room and board, this limitation does not apply to her personal property, since she is a relative.
Since Jillette has lived on her own for several years, she will likely have her own household furnishings & contents, TV, and numerous other items of personal property. If she keeps all this property at Jack and Jill’s house, there is the potential that their Coverage C might not be adequate.
Or, Jillette might elect is to put much of this property into a storage facility, such as a miniwarehouse. If Jillette has residency status and therefore is an “insured,” there is a provision in Jack and Jill’s policy for certain property off-premises that is subject to a 10% limitation. Here is the excerpt:
Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises", is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property.
It is important to note that this 10% limitation for Coverage C property which is stored off-premises at a miniwarehouse is NOT subject to the 10% limitation. The limit only applies to personal property which is “usually located at an "insured's" residence, other than the "residence premises…” The limit only applies when an insured keeps property at another residence of his/hers. The miniwarehouse is not a residence; therefore the 10% limitation does not apply. However, if Jillette has personal property still at some other residence of hers, then her coverage under Jack and Jill’s policy is 10% of their Coverage C for such property.
If Jillette is not a resident of Jack and Jill’s house, she would have no coverage for her property in the miniwarehouse. As noted above, her coverage as a nonresident would be that afforded to “others while the property is on the part of the residence premises occupied by an insured, or “a guest or a residence employee, while the property is in any residence occupied by an "insured".
Another personal property issue Jillette needs to address is if she had personal property that should be scheduled, such as jewelry, etc.
Liability and Medical Payments. Section II applies to “insureds.” As noted above, Jillette’s status as a resident is not automatic simply because she is staying there. She would have to show more of a residency connection to her parents’ home than merely being there for a short period of time.
Recommendations. Probably the safest approach for Jillette is to obtain her own HO-4. As outlined above, her status as an insured depends on her proving residency, so having her own insurance eliminates the problem. Even in cases where she can establish residency for now, at age 25 that is likely to change at some point, probably sooner than later.
Another advantage to her having her own insurance is so that she could secure adequate limits on her personal property, including a schedule for valuable items, or adding coverage for a jet ski, ATV, etc. Also, she could select her own Section II limits, which would be particularly important if she has a Personal Umbrella.
PERSONAL AUTO POLICY
Assume Jillette has her own PAP, and that Jack and Jill have their own PAP.
Issue #1 – Jillette driving Mom’s car. Jack and Jill’s PAP is primary. Jillette is an “insured” in their policy, in one of two ways. In their PAP:
B. "Insured" as used in this Part means:
1. You or any "family member" for the
ownership, maintenance or use of
any auto or "trailer".
2. Any person using "your covered auto".
The PAP contains the following definition of “family member”:
"Family member" means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.
Therefore, if Jillette is a resident, she is covered by the provisions of B.1., for any auto. If she is not a resident, she is covered as a permissive user under B.2.
In Jillette’s PAP, she is covered in Part A Liability for the “ownership, maintenance or use of any auto or trailer.” Many of the exclusions in Liability are drafted to restrict the broad term “any auto” in order to provide the coverages intended. In Jill’s PAP, the following Exclusion 3 should be reviewed:
3. Any vehicle, other than "your covered auto",
which is:
a. Owned by any "family member"; or
b. Furnished or available for the regular use
of any "family member".
However, this Exclusion (B.3.) does not apply
to you while you are maintaining or "occupying"
any vehicle which is:
a. Owned by a "family member"; or
b. Furnished or available for the regular use
of a "family member".
While her PAP excludes an auto that is owned by a family member, the exception provides coverage for Jillette in her own policy while she is “maintaining or occupying” that car. This would clearly provide coverage for Jillette in her own PAP while she is driving her Mom’s car.
Issue #2: Jack, Jr. driving Jillette’s car. Jillette’s PAP would be primary, and Jack, Jr. is an insured, either as a “family member” (see “Insured” B.1. above) or a permissive user (B.2.), as discussed in Issue #1.
For excess coverage, Jack, Jr. is NOT covered by Jack and Jill’s PAP, if Jillette is considered a resident family member. Refer to the preceding discussion of Exclusion 3 above. Mom and Dad’s policy excludes liability coverage for an auto “owned by a family member.” The only exception is “while you are maintaining or occupying” the vehicle. In the PAP, “you” is defined as the named insured and resident spouse (i.e., Jack and Jill only).
However, if Jillette is not considered a resident of Jack and Jill’s household, then Exclusion 3 in their PAP would not apply, since the car Jack, Jr. is driving is owned by someone who is not a “family member.” Therefore, in that situation, Jack, Jr. would be still be covered under his Mom and Dad’s PAP for his use of Jillette’s car.
CONCLUSION
When dealing with “Boomerang Kids,” the prudent approach for the agent would be to review the broad spectrum of insurance issues with both the parents and the adult kids. Good documentation would be important.
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