Insuring a Nonresident Child Who Drives Their Parents’ Auto

An agent’s insured has a 25-year-old child who is out of school, employed and no longer living at home. The insured wants to keep them on the parental auto insurance policy because it’s cheaper for their child. The parents own the vehicle, but the child possesses and drives it.

Q: “Under the standard ISO personal auto policy, does this situation create coverage gaps? What happens when the child no longer meets the definition of a ‘family member’ at the time of a loss? Can the child still rent a vehicle? Do they have uninsured/underinsured motorist liability coverage? What else should we be worried about?”

A: “The policy should usually be issued in the owners’ name. As you point out, since the child is not a ‘family member,’ they have no coverage while operating any non-owned auto that’s not a temporary substitute. If the child acquires an auto, there is no automatic coverage. Coverage gaps can arise anywhere in the policy where ‘you’ are covered, but not a ‘family member.’

The best way to handle this situation is to add the child as a named insured on the policy—although few, if any, insurers may do that. ISO has an endorsement that allows you to issue a policy on a jointly owned auto in the name of relatives that don’t live together, or unrelated people that do live together.

The alternative is likely to transfer title to the child and have them procure their own policy. It might be more expensive for them, but not nearly as expensive as the costs if the child negligently kills someone and discovers they have no coverage at all.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.