From the September 2016 issue of Investment Advisor • Subscribe!

Back-to-School (Risk) Basics

An extraordinary array of property and liability risks confronts the parents of children away at boarding school or college

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(Illustration: Michael Austin/Theispot.com (Illustration: Michael Austin/Theispot.com

The time of year has come when summer light fades earlier in the day and children prepare to return to school. For families whose children attend boarding school or a college away from home, the bittersweet feelings produced by their absence should be mingled with concerns over their safety and well-being — and the family's financial security.

An extraordinary array of property and liability risks confronts the parents of children away at school. In some cases, but not all, a parent's insurance policies will provide financial protection. The greater dilemma is that the activities of children are beyond the supervision of parents. Unacceptable behaviors that would be observed and corrected at home may go unnoticed at school.

It's not just a student's actions that may result in significant financial costs for parents. A case in point is Hurricane Katrina, which resulted in the closing of Tulane University, Loyola University and the University of New Orleans for several months. While the universities quickly established the means for students to attend other schools, the additional living expenses of commuting to these institutions, in addition to the housing costs for students who previously lived in a dormitory on campus, were substantial. Until recently, these additional living expenses were not covered by insurance. Such polices are now available.

Pearls and Porsches

The threats posed by extreme weather are just one of the many financial losses that can occur while a child is away at school. There is the risk of damaged, destroyed or stolen personal property like automobiles, electronic equipment, jewelry and expensive clothing. In addition to property-related financial losses, families are also exposed to liability-related risks. To learn more about the liability trends involving students away at school, I contacted Colleen Signorelli, vice president of personal insurance services at The Daniel and Henry Company, a St. Louis-based independent insurance broker that serves a high-net-worth clientele. She spoke to the risks facing HNW individuals and their families.

One such risk is when young adults head to campus with their car and allow their friends to borrow it. As Signorelli rightly pointed out, if there is an accident, the owner of the vehicle, who is often the parent, is held liable for the property damage to the other person's car; if there are injuries, the vehicle's owner is also liable to those injured.

In the reverse scenario, where a client's child is borrowing a friend's car, Signorelli advises parents to have proper coverage in place to protect their young adult driver, including an umbrella policy with limits that protect their assets. She also recommends that parents caution their children to limit the use of their vehicle by others.

Electronic Toys and Social Media Mayhem

For younger children in boarding school, such catastrophic risks are less likely. Still, there are other financial threats that warrant strict parental attention. All children nowadays have an array of electronic devices — a mix of smartphones, laptops, tablets and personal computers. Children from wealthier homes may own all these devices, as well as other expensive personal property like high-end luggage, watches and clothing. If all this property was stolen, damaged or destroyed in one fell swoop, the cumulative costs would likely consume the parent-paid deductible of the boarding school's insurance policy.

While the loss of these personal items and the associated expenses may not produce financial mayhem for the affluent parents of a child at boarding school, the expense of a liability lawsuit resulting from the abuse of social media may be more troublesome. When a child uses social media to shame a fellow student or teacher and makes defamatory or libelous remarks that may go viral, it could result in a potential lawsuit for parental liability.

More than half of adolescents and teens have engaged in cyber bullying or have been bullied online at about the same percentage. The emotional consequences of such hurtful activities can be grave, from lower self-esteem to suicide. The latter situation may also result in both criminal and civil lawsuits against the parents of the alleged cyber bully.

Review Coverages and Responsibilities

It's when children reach college age and beyond — really into early adulthood when they may be attending graduate or medical school — that people need to be aware of their coverage. “Depending on the age of the student, most undergraduates are still considered members of the household and are covered by their parents’ insurance policies,” Signorelli said. “The greater issue is once students have graduated from college but haven't returned home. There is a misconception that if they are still being supported by their parents, regardless of the fact that they no longer live in the household, they are covered under the parents’ policies. That's not always the case. There are important adjustments that need to be made to their insurance coverages to properly protect the parents and the young adult, such as purchasing a renter's policy and making adjustments to their auto insurance. It is important that the parents notify their agent, and equally important that they have a knowledgeable agent who can provide accurate consultation about changes that should be made.”

As students prepare for college, parents also should remind their kids about responsible living while they are on or off campus and away from home. For example, in one incident, a drunk student fell off the deck of an insured student's off-campus home and was paralyzed.

Although most parents’ insurance policies, assuming adequate limits augmented by an excess liability or umbrella insurance policy, would address these costs, Signorelli noted that every policy has a definition of a household member and who is covered by it. “Our biggest worry is when a client's children are no longer in the household, and we have not been notified to make the necessary coverage adjustments,” Signorelli said.

The day before we spoke, Signorelli received a call from one of her clients regarding his son, who was moving from his university dormitory into a house with four other students. Landlords often require that parents co-sign the lease on the house, but this comes with risk. The father wanted to know if all the parents should participate in buying a renter's insurance policy, since he decided to be a co-signor on the lease.

“I explained to him that if his name is on the lease, he is liable for resulting property damage and bodily injury,” Signorelli said. “I also pointed out that the ‘best practice’ was for all the parents to buy separate insurance policies; this way each policy would participate in the potential loss payment if all the kids are named in a lawsuit.” She adds that it's relatively inexpensive to increase the liability limits of a renter's policy in order to provide adequate protection.

For high-net-worth parents whose children are headed to boarding school and college in a few days, now is a good time to sit down with a specialized insurance agent like Signorelli to discuss the ABCs of risk management and insurance. Anything can happen while a youngster is away at school. Protect your educational investment, while ensuring your child's safety.

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