Parental Liability for Children’s Cars

Parental Liability for Children’s Cars

Should a teenage driver be insured under the parents’ policy or the child’s policy? Often, parents want to take a vehicle off of their policy, title it to the minor and have the minor on his or her own policy. They do it so other vehicles in the household do not get rated up for the 16-year-old driver and the parents’ assets are insulated from a lawsuit against the minor.

While there might be rare exceptions and sometimes there is no choice, from a markets standpoint, it is almost always better to insure dependent children on the family auto policy for legal liability and a variety of other reasons.

To read through the VU’s eight articles on this coverage issue, click here.

Leasehold Interest Insurance Candidates

A not-for-profit company leases a building from the state for $10 a year. The state self-insures this 50-year-old building. If there is a loss to the building, the state likely would not repair it, and the tenant would be looking to rent a new home at a much higher cost. This insured is a prime candidate for leasehold interest insurance. Unfortunately, many agents don’t understand how the form works and how the coverage amount is determined.

For example, say a tenant pays $2,000 a month, but the monthly rent for an equivalent site is $2,800. His “gross leasehold interest” is $800 per month. Assuming that there are 32 months left on the tenant’s lease when the coverage was written, his maximum financial exposure (if there is a loss the day after the policy’s inception) will be $25,600 ($800 X 32 months).

His insurance proceeds can be handled in one of two ways. The insurer can send the tenant a check each month for $800, or the insurer can pay the insured a lump sum and close the file. However, if the insurer chooses the second option, it would not need to pay the insured the entire $25,600. Instead, it can give the insured a lump sum, and the insured can invest the money at a specific rate of return, and in 32 months, he will be fully indemnified.

This lump sum is the “net leasehold interest” described in the CP 00 60 or, as accountants call it, the “net present value” of the future stream of payments. The end-of-lease value ($25,600) is converted to “present value” by using a rate of return the insured believes he could get on the lump sum from the insurer.

For example, if the insured believes he can get 8% on the lump sum, the “leasehold interest factor” referred to in the CP 00 60 (found in the endorsement CP 60 08) indicates a factor of 28.8372. This value is multiplied by the $800 (“gross leasehold interest”) to produce a lump sum check of $23,070. Thus, this lump sum amount of $23,070 will earn the insured $25,600 after 32 months at 8%.

For more information and alternative explanations, click here.

Equipment: Building or Personal Property?

Building coverage includes personal property owned by you that is used to maintain or service the building or structure or premises, including appliances used for refrigerating, ventilating, cooking, dishwashing or laundering. Does this apply to any laundry equipment (e.g., a public laundromat) or only if it is actually used to “service the building” (e.g., an in-house hotel linen laundry)?

For a complete analysis, including the recommendation of an oftenoverlooked ISO endorsement that could resolve the coverage dilemma, click here.

Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers