Posted : 01/10/2012
Goodbye empty nest, hello boomerang kids.
If the tight job market has left your adult child – whether a recent college graduate or young adult living away from home for the first time -- unemployed or struggling in a minimum-wage job, he or she might need to return back home.
Doing so would bounce your child into the burgeoning "boomerang" demographic. And, while that move may solve some of your young adult's immediate financial problems, it could cause new ones for you if you don't check with your insurance providers to make sure everyone is properly covered.
"A lot of people thought the umbilical cord would be severed for good when their child graduated," says Scott Halliwell, a Certified Financial Planner at USAA.
But that isn't necessarily the case. Nearly 20 percent of young men and 10 percent of young women between the ages of 25 and 34 now live at home, according to the U.S. Census Bureau. That's a notable rise from 2005, when 14 percent of young men and 8 percent of young women resided with Mom and Dad.
The percentage of 18- to 24-year-olds living at home or in college dorms also has climbed. For young men, it has jumped from 53 percent to 59 percent, while for young women it is up from 46 percent to 50 percent.
Although the Census Bureau doesn't say what caused the climb, the prolonged recession and weak employment rate – particularly among young people – likely bear at least part of the blame.
As the parent of a boomerang child, "you need to be careful from a financial perspective and a liability perspective," Halliwell says.
Having a child return home could have a major impact on your auto insurance rates, while the effect on your homeowner insurance policy may depend on the types of possessions they have.
The most important thing you can do is contact your insurance agent and see what changes you might need to make, says Mario Morales, manager of corporate underwriting at MetLife. Because boomerang children have become such a common phenomenon, "this isn't a scenario that catches an insurance company off guard."
If your adult child is moving back home and will regularly use one of your cars, he or she needs to be added to the policy to ensure your vehicles are properly rated. That takes into account any discounts and surcharges that apply, while also "eliminating any potential gaps in coverage," Morales says.
Some car insurance plans have no age limit for a child to be included on their parents' policy, as long as they live in the same household, Halliwell says.
If your child has his or her own vehicle, you could be eligible for a multicar discount, Halliwell says, saving the child money. But that can create extra costs or extra liability exposure for you.
Instead, Halliwell prefers for children to foot their own insurance bills if they can afford it. As a parent, that protects you financially. And for your child, "they should still take steps to adulthood, not revert back to high school."
On the other hand, having your child return home typically has minimal impact on your homeowners insurance policy. As a family member, the child's possessions are covered under your policy.
However, if your child has expensive electronic equipment, or a pricey engagement ring or musical instruments, you might need to take on additional insurance coverage, Morales says.
And because so many households are already overflowing with possessions, you might need to rent a storage unit for those extra belongings. Your personal property coverage extends to the possessions in storage, Morales says, but exclusions may exist.
So if someone breaks in and steals your possessions, or if fire or water damages your belongings, they're covered under your homeowner's policy, Morales says. But you won't be covered if the items are stored in a unit that isn't climate-controlled and are damaged by mold or mildew, or if they are broken while in storage.
Health insurance is another concern with your boomerang child. Under the recent health care reform act, adult children can be carried on a parent's health insurance policy until age 26. This makes sense if the child is unemployed or self-employed, but could even be a wise move if he or she is in good health and working at an entry-level job and paying a high premium for coverage through the employer.
One caveat: up until 2014, employers aren't required to offer insurance to young adults on their parents' plans if that child can get the coverage at his or her own job, according to the 2010 Patient Protection and Affordable Care Act. After 2014, however, young adults under age 26 can stay on their parents' employer plan even if they have the option of coverage through their own employer.
If you have a boomerang child returning home, it's the perfect time to review your insurance coverage with your agent, Halliwell says. "You don't want financial disaster to come because you weren't prepared and didn't know it."
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