If you recently moved in with your sweetheart, an
insurance gap may have moved in with you — without your knowledge.
Millions of unmarried Americans who live together could have hidden
gaps in their car and home insurance coverage.
Most home and auto insurance
policies contain language that requires you to notify your insurer if a
new person moves into your residence. A failure to comply can cause
problems when filing a claim — depending on its nature. Under certain
circumstances, you could find yourself uninsured when borrowing your
honey’s car — even if you have car insurance. Also, your belongings
aren’t automatically covered under your sweetheart’s home insurance
policy when you move into his/her residence.
"I doubt many people discuss this," says David
Thompson, an insurance instructor with the Florida Association of
Insurance Agents. "When a guy says to a young lady, 'Hey baby, do you
want to move in with me?' I doubt she says, 'Let me call my [insurance]
agent first and then I’ll give you an answer tomorrow.' It’s the last
thing on their mind until the insurance claim comes up."
According to the U.S. Census Bureau, there
were 6.8 million opposite-sex couples (13.6 million people) living
together without being married in 2008. The number of unmarried couples
living together has increased by 88 percent from 1990 to 2007. But it’s
not only romantic couples that face the possibility of insurance gaps
by living together: This also applies to roommates who live together
for financial reasons.
Let’s say Sue recently moved into her boyfriend
Bill’s home. A fire breaks out and destroys many of their belongings.
Bill’s home insurance will cover his belongings. However, Sue may have
a difficult time being reimbursed.
"We can argue there might be some coverage if that
person is viewed as a guest," says Thompson. "But most insurance
professionals take the approach that the live-in’s personal property is
not covered."
The same scenario would apply to roommates.
If a friend moves into your home or apartment and starts paying rent,
don’t assume that their belongings are covered under your insurance
policy.
Fortunately, there are a number of options
available to people who choose to live together for romantic or
financial reasons. Thompson recommends one of the following.
Some home insurance companies may be willing to
list a live-in person as a "named insured" on your home or renters
insurance policy at no extra cost. Most insurers won’t do it, but it’s
worth asking about, says Thompson.
If someone moves into your home or apartment,
suggest they purchase a renter’s insurance policy for your residence in
their name. If disaster strikes, you will make a claim on your own
policy and your live-in will make a separate claim on his/hers. If you
and your live-in buy a home together, you can purchase a home insurance
policy with both of your names on it. If you both move into a new
apartment at the same time, you can also purchase a renter’s policy
with both names on it. Insurance gaps usually happen when one person
moves into another’s home. "People think that just because they move
in, they are covered," Thompson says. But "the unnamed live-in is a
nobody from a liability standpoint on the homeowners policy. There’s no
coverage at all."
Ask your insurance company if it offers an
endorsement to your home insurance policy for unrelated persons. Some
call it a "live-in endorsement." Basically, this will give your live-in
coverage under your own policy. If your insurer offers it, it’s cheaper
than buying a separate renter’s insurance policy. However, Thompson
recommends paying a little more for a separate policy because then each
person controls their own coverage. For example, if your live-in takes
a vacation without you and becomes a victim of theft, he/she could make
a claim on your policy — tarnishing your claims record. At the
same time, the check from the insurance company would not be mailed to
the live-in but to the main policyholder — which can complicate matters.
It’s not unusual for romantic couples — and
sometimes roommates — to share a car. Maybe you have keys for your
live-in's car and vice versa. If you frequently use each other’s cars,
you have entered murky waters when it comes to car insurance coverage.
Under a standard car insurance policy, if you loan
your car to a friend, he/she is covered under your policy in the event
of an accident. Your policy insures your vehicle plus "you, any
relative and anyone else using your car if the use is with your
permission." If you borrow someone’s car, your insurance will also
serve as a backup to that person’s policy. However, there’s an
exclusion in standard policies that states your coverage is void for
any other car that is “furnished or available for your regular use.” So
Sue’s own coverage is void for Bill’s car.
This clause can trigger problems for unmarried
couples who live together and regularly share cars. In a worst-case
scenario, you could find yourself driving uninsured without even
knowing it. Let’s say that Sue and Bill regularly borrow each other’s
cars. Sue (who has her own car and insurance) borrows Bill’s car. She’s
not aware that Bill’s policy has lapsed and she is involved in a crash.
"If she has regular access then her policy says she
won’t be covered because of the 'regular use' [clause]," Thompson says.
"But if she goes next door to borrow her neighbor’s car, she is fine."
If Bill’s policy did not lapse, Sue would have been
covered under his policy. However, if Bill has low liability limits,
her own insurance will not come to her rescue after his are exhausted.
So what can Bill and Sue do?
"Disclose your live-in to your insurer for
underwriting purposes, list them as drivers and clone the limits, and
that’s the best you can do that for that situation," Thompson says.
Another possibility is for both Bill and Sue to add
each other onto their policies, but that will increase premiums.
Whenever you move in with someone, it’s always a good idea to notify
your insurance company so that you can avoid future financial
disasters.
