January 28, 2016- by Willy Hoffman Jr, CIC
This title may not make sense, but it is completely true, and is one of my most common mistakes, especially by those with kids just out of college. Having a driver listed on your policy only allows the company to charge a premium for that driver, but does not provide any coverage for the driver. If you look at your policy's declarations pages, they will state something like, “Rates are based on the following household drivers”. Please note, it DOES NOT state, “The following drivers are covered by this policy”. I know that is what people assume, but that is not the case.
Who is covered by the Auto policy is determined by the actual policy language. Most policies state something like, “We cover you (the person listed on the policy as the Named Insured), your spouse while a resident of your household, and your children while residents of your household”. Most companies will consider a child who is away at college but plans to return to your home as a “resident of your household”. You may have noticed that it does not say anything about covering those drivers listed on the policy.
So here is the typical problem. Your son graduates from college up in NY and gets a job with a local NY firm. He then rents an apartment in NY. He still has your car and you still have both the car and him listed on your policy, so you mistakenly believe he is still covered on your policy. As we mentioned above, the policy ONLY covers you and your children “while residents of your household”. Since your son now has his own place, he would no longer be considered a resident of your household and would therefore not be covered by your policy. If your son then causes a bad accident, not only will they not cover him, but they may also not cover you as the owner of the car. They could argue that their policy only covers the cars garaged at the insured location (your home here in DC) and completely decline the claim.
The typical solution we recommend is to put the car in your son’s name, have him register it there in NY and get his own Auto policy. This way you have no liability for accidents he causes, and he still has all of the other benefits of being an “Insured” on an Auto policy. For example, one of the best things about being an “Insured” on an Auto policy is that the Uninured/Underinsured Motorists (UM) coverage applies to you. This protects you in the event that you are injured by a vehicle that has either no insurance or not enough insurance. For example, if your son in NY takes a cab and is in an accident causing him to have $200,000 in damages, but the at fault driver only has $25,000 in coverage (typical of most cabs), your son would only be able to collect $25,000 since he is not covered under your policy. However, if he had his own NY policy with a UM limit of $300,000, he would be able to collect the $175,000 that the other insurance did not pay.
I know some of you are thinking, if the policy covers my family members while living with me, then why do I need to list my teenage driver on the policy, since they are already covered. The problem is that the companies ask you to list all drivers in your household, so if you don’t list them, and allow them to charge a premium, they could allege fraud and decline a claim.
If you don’t have any agent to help guide you through these complex coverage issues, you should!