Adult Children on Auto Policy Creates Exposure

CLIENT:

Client of M3’s Private Client Group

ISSUE:

Helping your adult children out is one thing, but in the process, are you exposing your own wealth?

If you have adult children not living in your household but still on your auto insurance policy, you may be putting your personal net worth at significant risk.

This private client, a couple with a net worth of $10 million, had four children, three of whom were adults living on their own. Each of the adult children used a vehicle titled under their parents’ name and covered on their parents’ insurance policy.

What’s wrong with this situation? From a risk management point of view, plenty.

IMPACT:

By changing the policy structure, the client eliminated a major risk exposure to their wealth, a fact that became exceedingly clear within a few months of the changes.

When M3 sat down with the client for a personal risk review, we suggested strategies that included changing the vehicle situation just described. But why?

The basic reason was this: By having all of their adult children on their policy, the client was putting their net worth significantly more at risk.

Also, adult children in such a scenario actually lose certain coverages. For example, because they’re out of the household and not documented insureds, if the adult children borrow or rent a car, they would have no personal auto policy, which would mean they have no coverage in place for those circumstances.

Back to the client: They followed our suggestions and had the titling and auto insurance policies all separated out. In other words, each adult child now had a vehicle titled under his or her own name and an auto insurance policy under his or her own name.

Just five months after doing this, one of those children was in an accident. More specifically, he ran a red light and struck a vehicle carrying two people, one of whom was ejected upon collision. Both were transported to the hospital with serious but, thankfully, non-life-threatening injuries.

Yes, the adult child will use up his personal liability coverage. However, if not for the steps taken to separate the titles and policies, the financial repercussions of the accident would have reached into the net worth of the parents.

The lesson

If you’re interested in giving your adult children a financial leg up, find ways to do that which don’t expose your personal net worth. Talk to a private client risk executive at M3. We specialize in identifying ways to keep your wealth better protected.

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