Dealing with Claims – Understanding the Limits of Homeowner’s Insurance

This months Claim’s Magazine, the insurance industries news magazine on insurance claims, wrote a useful article on the limitations of homeowners insurance and the potential value of renters insurance to college students.    The entire article can be found here or for highlights read the summary below.

“It’s September, traditionally the time of year when teachers and students head back to school, if they have not done so already. Those of a certain age can remember when going back to school did not occur until after Labor Day, but I digress. What has not changed is the fact that as older students return to school, they are taking possessions and vehicles to colleges and universities some distance from home. This raises questions about insurance coverage and the property they have taken with them: Is it covered? How should it be covered? When does coverage end?

Full-Time Concerns

Before we get into the property itself, we first must be sure the student still qualifies as an insured, since this criterion has changed over time. In the 1991 ISO homeowners’ form, an insured was a resident relative of the insured or someone under the age of 21 and in the care of a resident relative. No special criteria existed for students away at school, which led to confusion. While the student would be away for months at a time, her home was with mom and dad, and most of her property was still at this residence. The student was at school only for the semester.

Partly because of this confusion, the 2000 homeowners’ form was changed to specifically address the issue of students away at school. The 2000 policy states that a student enrolled in school full-time, as defined by the school, and who was a resident of the household before attending school, is under 24 years of age, and a relative is still an insured. This language makes it clear that students with property away at school are still insureds under their parents’ policies.

Note the statement that the student must be attending school full-time as defined by the school. In the past, some carriers developed their own underwriting guidelines that allowed coverage for students away at school full time, but the definition of “full time” was always a concern. Who was to define full time, and what was entailed in that definition? Using the school’s definition of a “full-time student” makes it clear and easy for all concerned, and removes any guesswork.

Another important item to note is that the school does not have to be accredited in any way. If the person is a student at Master Sahib’s School of Levitation and Snake Charming and the school considers the student to be full time, then the student is considered an insured.

Other Coverage Issues

Now the student is happily ensconced in the dorm with a lava light, laptop, microwave, and other essentials necessary to college life. If the student’s property is stolen, say the lava light and microwave, is there coverage for the stolen property? The policy states that property owned or used by an insured is covered while anywhere in the world. Since we have established that the student is still an insured, there is coverage for the precious lava light and microwave.

Many students take not just personal property, but vehicles with them to college. Most parents do not think anything of it since they are probably paying for the vehicle and insurance the way they had been. The only difference is that the vehicle is located elsewhere.

That is an important difference and is an important underwriting issue. Where the vehicle is garaged can greatly affect the policy premium. The vehicle may be out of state from September through May, which is most of the year. The student could well be attending college in an area that is rated higher or lower than the home territory. A family in New York City will certainly get better rates when the vehicle is garaged in Ohio for most of the year. With the cost of tuition and books, a break on premium is a welcome bonus to parents. Naturally, the converse is true if a student goes from an area where insurance is less expensive to one where coverage is more expensive.

Another issue with vehicles away at school is permissive use. The liability section of the auto policy provides coverage for any person using your covered auto. The policy therefore provides coverage when the student allows his roommate or another friend to drive the vehicle.

Coverage can become an issue when the student is rather free with whom he allows to use the vehicle, and a friend of the student gives the keys to the vehicle to a friend of his and that friend wrecks the car. Did the driver have reasonable belief to believe that he had permission to use the vehicle? This is where it gets sticky.

Unfortunately there are no easy answers to this predicament; it depends on the situation at hand, how often the first friend was allowed to drive the vehicle, and whether he reasonably believed that he could grant permission to drive the vehicle to others.

Going away to college is an exciting time for most students, and a time of letting go and some worry for parents. While not all problems can be avoided, if the parents and students are aware of potential coverage issues beforehand, it can help to prevent complicated loss situations in the future.

GradGuard offers renters insurance designed for college students and their families through this site or also through College Renters Insurance. Both provide products that help close the gap and to provide a sound alternative for college families looking to mitigate the potential property loss that results on campus.