Last spring a hummingbird built a nest outside my window so I was able to watch the whole process from egg to first flight. After the new hummingbirds leave the nest the mother spends two days showing them how to get nectar then she chases them off for good to live on their own. If only it were that easy. In this post, I’ll cover liability risk issues related to adult children and steps you can take to protect your assets and theirs.
By “adult children” I’m referring to the Millennial generation, generally aged 23-34, no longer in college but not yet completely on their own financially. What do we know about Millennials?
- 36% are living at home
- 41% of “young affluent Millennials” have no advisor of any kind
- Most look to the web, friends and family for advice
- Frequently fail to get adequate insurance: 72% of those under 30 are renters but only 40% of those have renter’s insurance
- Fail to appreciate the liability risk their behavior has on their parents
- Face a variety of new liability risks (social media and the sharing economy for example)
Protecting Your Assets
Parents of dependent adult children are subject to vicarious liability. So you can get sued if your child has a party at your home and someone is hurt or drives home drunk. Or you can get sued if your child loans his car (on your policy) to a friend and there’s an accident. Steps you can take:
- Remember the old saying “my house, my rules”? Make your child aware of liability risk and use it as a rationale for some rules. Avoid parties, car sharing and any internet activity that might result in defamation or slander.
- Get adult children off your auto insurance policies. To protect your assets they should have their own even if you pay the premiums.
- Under most liability policies, children cease to be dependent when they turn 26, and therefore cease to be covered. So at that age to protect against personal liability risk they should get a renters policy, even if they live at home.
- Even after your child turns 26 you can still be exposed. For example, if they use your car. From a risk perspective, co-owning cars and other property with your children is not a good idea. If you must, be sure they have the right insurance and you are a named insured. Cosigning mortgages and leases exposes you as well. If you cosign a car loan make sure your liability is limited to the value of the car.
Protecting Their Future
Because Millennials depend on the web/media/friends for advice they are susceptible to the notion that insurance is a price-driven commodity. To get a low price they might be induced to buy stripped down policies with low limits excluding important exposures like uninsured motorists. Or perhaps they bought state mandated minimum insurance in their early 20’s and now 10 years later its inadequate. They need to hear the following:
- The world is not fair. You can get sued and lose even if you did everything right and it’s not your fault. Lawyers are attracted to deep pockets.
- You may think you have little to lose. But smart lawyers will come after your parents’ assets if they can. They will come after your future earnings. They can even come after a pending inheritance. Young professionals should have a total liability limit exceeding their current net worth.
- The reason our economy works in this litigious society is insurance. It’s a cost of doing business like taxes. You’re not only buying financial protection (indemnity), but you’re buying contingent services like a legal team, claims service, etc. If something bad happens you don’t want to be hanging out there alone, and you don’t want to be coming back to Mom and Dad.
- Three insurance basics: sweat the big stuff (high deductibles, high limits), don’t find a bad way to get a low price and get an agent you can trust.
Having the Conversation
It’s my experience that risk management and liability insurance are blind spots for many Millennials. They’re skeptical of advisors and see funny insurance ads on TV so aren’t exposed to how serious a mistake could be. As parents of Millennials we can start the conversation with our children with two questions:
- In what ways does your behavior expose our assets to risk and what can we do about it?
- Are your current and future assets properly protected?
If you’ve been reading my previous posts, you’re pretty well equipped to start this conversation with your kids. You can go it alone or as a service to you I would be happy to facilitate regardless of where your kids live or where they choose to buy insurance. I don’t want any of my clients to lose money in a lawsuit in this generation or the next.
As parents we need to let our kids figure some things out for themselves. This is not one of those things.
Source document: “A Generation at Risk” Chubb Personal Insurance 2015
This site is informational and not a substitute for professional advice. Insurance coverage is subject to the language of the policies as issued.