To help their clients guard against the liability risks associated with a child going away to college, advisors can encourage them to take the following steps.
- Education. Making the student aware of dangerous situations provides the first line of defense. Sit down with the student and explain the risks involved with lending a car to friends, borrowing a car, hosting parties, and carelessly using social media.
- Monitoring. As President Ronald Reagan famously said during negotiations with the Soviet Union: Trust but Verify. To assure safe driving, clients could consider many new devices that monitor driving behavior. Some wirelessly transmit maximum speed, distance traveled, and hard breaking after each trip, allowing parents to catch bad driving habits and put the student on notice. If an accident occurs, data may prove beneficial in determining fault. Clients should also stay as connected as possible to their kids on social media platforms.
- Auto/home/umbrella liability insurance. Clients should purchase enough liability coverage to match their net worth and future income. This usually involves buying the maximum amount of liability coverage in the auto and homeowner policies and then supplementing that coverage with an umbrella liability policy. Carriers that specialize in serving high-net-worth families typically offer umbrella liability coverage starting at $1 million and going up to $100 million.
- Uninsured/underinsured liability insurance. This coverage ensures protection if the student is seriously injured and the person responsible has insufficient insurance to pay for damages. The student could be seriously injured while riding on the back of a friend's motorcycle, and a friend's parents might have no umbrella liability insurance. Overcrowded decks and balconies at a party could collapse, potentially injuring many students and quickly exceeding the liability limit for the property. Uninsured/underinsured coverage helps compensate for the other person's lack of coverage.
- Overseas coverage. If the student plans to drive a rented or borrowed vehicle while studying abroad, be sure to purchase liability coverage in the country, as liability coverage from the U.S. auto policy may not extend to the foreign country for rented or borrowed cars.
- Name college residences on policies. While a dorm or off-campus landlord will likely have protection, it may not apply or suffice in all circumstances. Naming the student's residence as an insured location on the parent's homeowner and umbrella policies adds another level of protection, and usually costs next to nothing.
Given the complexity of risks associated with a child going away to college, the most important step wealth advisors can recommend to parents is to seek the advice of an independent insurance agent or broker. By raising parents' awareness of the threats and then referring them to an insurance expert, wealth advisors can strengthen their overall client relationship by offering sound counsel at a major transition point in the life of any parent.
