If you’re not married but live with your significant other, there may be insurance limitations of which you are not aware. In this post, I’ll explain the insurance problems that often apply to domestic partners and what you can do about them.
If either of you carry a Homeowners or Renters policy, you might assume that the policy’s personal property and liability coverage will automatically extend to the other partner. Unfortunately, this is usually not the case. A standard Homeowners or Renters policy provides personal property and liability coverage to “insured persons”. Typically, an “insured person” is the policyholder and his or her resident relatives.
This means that if a policyholder has children, parents, siblings or a spouse who live with them, these individuals are covered – but not the policyholder’s unmarried domestic partner. And while your policy may give you the option of choosing to cover your domestic partner's personal property after a loss, no such option exists in the event of a liability claim against them.
No one really expects a future liability claim, but think about this. Imagine your partner accidentally leaves the stove on which starts a fire, causing thousands of dollars of damage. Your insurance company pays for the damage but then sues your partner as the negligent party causing the damage. Since your partner is not an "insured person" in your policy, your carrier is fully within its rights to seek reimbursement from the responsible party.
So what can be done to extend coverage on your home policy to the partner you live with? There are a couple potential solutions.
In some cases, you may be able to make your home insurance a joint policy. This would mean that you share ownership and control of the policy with your partner, and you also share all the coverage. Normally a joint policy won’t cost any more than a policy written in just one name. The problem is getting a joint policy often requires that you both own the home. Or if you are a renter, some carriers may require that you are both on the lease. Another thing to keep in mind with a joint policy is that you will probably both be named on any claim checks or refund checks, which perhaps may not appeal to you.
Another solution which might be better is to add your partner as an additional “insured person”. This coverage option is often called the “Other Members of your Household endorsement". As the sole policyholder, you still maintain exclusive control and ownership of your policy and your partner probably won’t be named on claim checks. You will, however, usually pay an extra charge for this (often $50 to $75 per year), and this option is not available with all insurance companies.
Depending on who you are insured with, it is certainly possible that neither of these options may be available to you. In that event, there may be no way to cover your partner on your existing home policy, and your best course of action (short of changing carriers) may be for your partner to buy their own Renters policy. He or she will be able to buy a Renters policy even if they don’t actually rent, and if they bundle it with their Auto insurance, it may not add much cost at all.
Speaking of Auto insurance, there might be coverage issues there as well. Now, if you each own and insure your vehicle under separate policies, there shouldn’t be any major concerns. Both of you are covered under your own insurance, and if you drive your partner’s vehicle with their permission, their policy will cover you. (If you do drive your partner’s vehicle, we recommend making sure their coverage limits are at least as high as yours.)
But what if only one of you carries an Auto policy? Sometimes one person will be sole owner of both vehicles in the household – perhaps because they have better credit or are otherwise better positioned to take out a loan. In this situation, what often happens is that the partner owning the vehicles insures carries the insurance for both and lists their significant other on the policy as a driver.
If your partner carries Auto insurance listing you as a driver, you probably think you are worry free. The insurance company knows about you; so you are covered, right? Yes and no. While you are covered to drive your partner’s listed vehicles with his or her permission, you are lacking important policy coverage for non-owned vehicles.
If your significant other who carries the Auto policy borrows a vehicle, his or her policy provides backup coverage in case the borrowed vehicle isn’t insured or its insurance limits are lower than their own.* And when they rent a car, their Minnesota Auto policy covers that as well. This coverage usually extends to any “insured person” on their policy, but, just like home insurance, you’re likely not an “insured person” being their unmarried domestic partner. So, in this situation, you are covered to drive vehicles listed on their policy with their permission, but you are not covered by their policy to rent or borrow a car.
If this is your situation, what can you do to resolve this coverage gap? Depending on your carrier, in some cases it may be possible to make the auto insurance a joint policy. As with a joint home policy, you then share ownership and control of the policy and will both be listed on claim or refund checks. Both of you enjoy all the policy coverage. But a certain percentage of insurance companies won’t write a joint policy unless there is a jointly titled vehicle.
At Pine Country Insurance, we represent multiple insurance companies, and our carriers’ rules pertaining to domestic partners vary. This choice of insurance carriers usually gives us the flexibility to get both individuals fully insured, if so requested. But we don’t always know when our clients living situation changes. So we advise calling your agent when things change to see if any insurance updates are needed.
*Coverage under standard Auto policies for a vehicle borrowed by an “insured person” typically applies as long as the vehicle is not furnished or available for the regular use of an “insured person”.
One of the most frequent questions clients ask is whether they need to buy the optional insurance coverage when they rent a car. The good news is that if you are insured under a Minnesota personal auto policy, your obligation for damage to a rental car is covered! In addition, your Minnesota policy will extend your third-party liability, Uninsured/Underinsured Motorist and Personal Injury Protection coverages while you are driving the rental car.
What this means is that you probably don’t need to buy the extra covered offered by the rental car agency. I’m sure this comes as good news, as this feature of your Minnesota policy can easily save you anywhere from ten to fifty dollars a day in extra costs and fees!
The key is that you must have a personal auto policy issued in Minnesota. Other states’ policies do not cover damage to a rental car under Liability coverage. Typically, in most states, rental car damage is only covered if you carry physical damage coverage on at least one of your vehicles. But because Minnesota policies cover rental car damage under your Liability protection, it doesn’t matter whether you fully insure your own vehicle or not. Another benefit in Minnesota is that no deductible applies to rental car damage and you’re also protected against loss of use assessments.
Was your policy issued in Minnesota? A quick check of your insurance card should tell you. Look for the words “Minnesota Auto Policy” at the top of the card.
While your policy must be issued in Minnesota to work this way, you don’t have to rent the car within the Land of Ten Thousand Lakes to be covered. As long as you are within your policy’s coverage territory (typically the United States and Canada but not Mexico), your Minnesota rental car coverage will come with you. I do recommend bringing your Auto insurance card along on your trip, as the rental car agency may ask to see it. Also, please note that the out of state car rental shop is not likely to know how your Minnesota coverage works and may tell you things about your insurance that aren’t true.
A word of caution regarding drivers. As the renter of the vehicle, you will be responsible for any damage to the rental car regardless of who is driving. First, be careful not to break your contract by allowing someone else to drive who you didn't list as a driver on the rental agreement. Secondly, I have heard that some policies may exclude damage caused by drivers not listed on your Auto policy; so it's probably best to restrict driving to people listed both on your Auto policy and your rental car contract.
So what is considered a rental car? State law defines a rental car as a private passenger vehicle, including a pickup truck or van (as defined by statute). Also included is a rented truck with a registered gross vehicle weight of 26,000 pounds or less. This means that if you are moving and rent a UHaul or other similar truck, your Minnesota personal auto policy may cover any damage to it, as long as it is within this weight limit. (To find out the registered gross vehicle weight of the truck you will be renting, call the truck rental agency or check their website. Getting this in writing is best!)
Another stipulation is that you must also be renting the vehicle for no more than one month. If either your rental agreement or your rate of payment is based on a period of longer than a single month, it is not considered a rental vehicle and is likely not covered under your policy at all. In addition, the rental contract cannot have a purchase or buyout option.
Let’s say you were planning to vacation in Hawaii for two or three months one winter and found a company online willing to rent you a car while you are there. Unfortunately, if you rent the same car on the same rental agreement for your entire stay, your auto policy likely provides no coverage at all.
Another very important requirement is that you must be an “insured person" under the policy in question in order for the rental car coverage to apply. An “insured person” typically includes the policyholder (aka the “named insured”) and his or her resident relatives. Unfortunately, just because you are listed on the policy as a driver does not necessarily make you an “insured person” when renting or driving other vehicles.
Here’s a couple examples of when rental car coverage wouldn’t apply. First, let’s say you live with your significant other but are not married and the auto policy is just in their name. Whether or not you are listed on their policy as a driver, you’re probably not an “insured person”. You may be covered to drive their vehicle with their permission, but you’re not covered to drive or rent anything else, because you are not related to the policyholder.
You must also be a resident of the policyholder’s household to be an “insured person”. Let’s say your 22-year-old child finally moves out into their own apartment. However, to save them money, you keep them on your Auto policy. Unfortunately, we’d probably have to presume that they are no longer a “resident relative” and therefore no longer an “insured person”. While they may still be shown on your policy as a driver and still be covered to drive listed vehicles with your permission, they aren’t covered when they drive any other vehicles or when they rent a car.
One final word of caution relates to your auto policy’s Liability limits. State law requires your Minnesota policy to make available a minimum of $35,000 in Property Damage Liability for damage to your rental car, but what if you damage someone else’s vehicle in the accident as well? Or what if the car or truck you are renting is worth more than $35,000? Before you rent that vehicle, check your policy’s Property Damage Liability limit and whether you feel comfortable that it is enough.
Part 2: Closing on your Home
This post is part 2 of a two part series. Part 1 covered what to look for when shopping for your home.
So, you have found the home you wish to purchase! I’m sure you are very excited. You have a signed purchase agreement and a target closing date which is likely 6 to 8 weeks away.
Your first step, of course, will be to talk to your lender to get the ball rolling on your mortgage. At this point, your lender is likely to give you a document called a Good Faith Estimate. Among other things, this estimates how much cash you will need to pay in closing costs.
Part of your closing costs will be your first year’s Homeowners insurance (often referred to as “Hazard insurance” by the mortgage industry). On their Good Faith Estimate, your lender will guess how much this home insurance will cost you. Keep in mind that this is only a guess; your lender is not an insurance expert and is not basing this number on the many factors that affect insurance rate. Rather, this estimated insurance premium is likely a round number based on averages they see for homes with similar purchase prices.
Within the first couple weeks after your accepted offer, it will be good to get the ball rolling on your Homeowners insurance. If you already have a relationship with a trusted local insurance agent, you will likely call him or her and advise them of the home you are buying so that they can put together a proposal to insure it. If you don’t have this kind of existing relationship, now is the time you will need to choose an agent. I find that this is the situation for first-time homebuyers more often than not; frequently young people buy their Auto insurance online, through an out-of-town agent or under their parents until they buy their first home.
If you do need to choose an insurance agent at this point, I recommend thinking big picture. Sometimes people choose their agent simply by calling around and seeing who is offering the lowest insurance premium today. While it’s definitely important to get a good price for your new Homeowners insurance, it’s equally important to get a good agent – someone who you can begin a relationship with and trust to assist you with your insurance needs for months and years to come. So I recommend interviewing your prospective agent(s) and asking them questions other than just how much their current rates are. For much more about questions to ask, please read my post How to Choose an Insurance Agent.
Getting a Quote
The agent(s) you reach out to will need to gather information about the home you are buying. If it was listed through a realtor, they will likely pull up the listing information online. This tells the agent a fair amount about the home, but they may have more in depth questions to ask you, for example the age and type of components such as the roof, heating, plumbing and electrical. What I’ve found is that the average buyer often doesn’t know these details, and so I’ll often ask homebuyers to forward me a copy of their home inspection report, which typically will answer most of these questions. For further discussion of how these home components affect your insurance, read my post Insuring an Older Home.
Your agent will also ask you questions that are more personal in nature. Have you had prior Homeowners or Renters insurance, and have you recently filed any claims? Do you have any animals and, if so, what kind? (If you have a dog, what is the breed and has it ever bitten?) Will you have a swimming pool or trampoline on premises? Will you conduct any business out of your home? Will you occupy this home as your primary residence? These questions, and others like them, will be used by the agent to confirm what policy and coverage you will qualify for and may affect the rate you pay as well.
At this point, it will probably also be good to talk to the agent about bundling your Homeowners and Auto insurance together. Most Homeowners carriers give large discounts (typically ranging from ten to thirty percent) if you also buy your Auto insurance through them as well. Another reason to consider bundling is that in our current market in Minnesota, many carriers don’t even offer unbundled Homeowners insurance, and sometimes these are the carriers with the best rates. While there are exceptions, in many cases you are likely to pay ten to fifty percent more for your Homeowners insurance if it isn’t bundled with your Auto insurance. Please note that bundling Home & Auto together doesn’t mean that they have to be paid together; usually that is not the case as your Homeowners is paid through your mortgage while you pay your Auto insurance yourself.
After the agent has all the information they need, they will need to put together a proposal for you. If you are talking to an independent agent such as us, the agent will likely be checking into several different insurance companies to find you the best value. Depending on the complexity of your situation, how many companies the agent is quoting and how many other quotes they are working on at the time, this quoting process may take a few days. This is a reason not to put off starting the insurance process until a couple weeks before your closing date!
If you talk to more than one agent, once you receive their quotes, you will need to compare and decide which agent you wish to choose. Again, I recommend basing this decision on more than just price! While price will be the most obvious way to compare, a minor difference in premium won’t seem nearly as important down the road if you have a loss and need to file a claim. I encourage you to ask questions of each agent, to try to understand how their proposed coverage might vary and how well you feel you can work with them going forward. (An important note: If you are buying a manufactured home, read my blog post Buyer Beware When Insuring your Mobile Home.)
Meeting With your Agent
Once you have reviewed the insurance proposal(s) and you have chosen the agent who you wish to use, the next step is typically meeting with your agent to sign an application for insurance. Here’s where the agent you choose will make a difference: While many agents may simply just tell you where to sign the application, it’s my opinion that a good agent is going to take the time to sit down with you, explain the coverage you are buying and go over the options and choices you can make to customize your insurance policy. We have this discussion with every new client, and I’ve been told by many new customers that this was the first time anyone ever explained their insurance to them.
Once your agent has a signed insurance application, he or she will be able to send a binder to your mortgage lender. A binder is a document that confirms that your insurance coverage will be effective on the date of closing. It indicates how much the home will be insured for, advises of the type of coverage and the deductible, shows the annual premium and it displays the mortgage company who will be listed on your policy. This document is required for your lender to prepare your final closing documents. Most lenders want a binder at least one or two weeks prior to closing.
Paying for your insurance
As referenced above, when you arrive at closing, you will be paying for your first year’s worth of home insurance. Then, starting with your first monthly mortgage payment, your bank will deposit part of that payment into your escrow account to cover future property taxes and insurance that will come due. Basically, you will be paying one-twelfth of your annual Homeowners insurance premium every month as part of the mortgage payment. Those amounts will sit in your escrow account until your home policy renews a year after closing, at which time your mortgage company will pay your next year’s insurance premium. More information about escrow accounts.
While I've talked to some first-time home buyers who assumed that it’s up to their mortgage company to take care of their Homeowners insurance, in reality this important decision is your responsibility to make. While your mortgage company might be the one writing the check to your insurance carrier, they’re using your money to do so. Homeowners insurance policies provide much more protection than just covering the home as collateral for your loan. A good Homeowners policy also covers your equity in the home, your personal property and your personal liability. It even covers your increased living costs if you can’t occupy your home due to a covered loss. So choosing the right coverage – and agent! – is an important decision you will make as a new homeowner.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.