Parents, Too, Should Prep for Child’s Life at College
Packing kids off to college? There may be a few items to add to the to-do list before they go -- like checking insurance policies, reviewing cellphone contracts and deciding how to handle their cash needs.
About 3 million teens are going to college this year, many of them hundreds of miles from home. For those families, a few extra minutes of planning could save a small fortune and lower risks of financial setbacks, said Steven Kroll, senior vice president of Answer Financial, an online insurance shopping service based in Encino.
Here’s a personal finance checklist for going off to college:
Insurance
There are three types of policies -- auto, home and health -- that need to be examined when sending a teen to college, said Candysse Miller, regional director of the Insurance Information Network in Los Angeles.
* Auto: A family may qualify for a premium discount on auto insurance when a dependent moves on campus and leaves her car at home. The discounts vary but can easily amount to 10% to 15% of the premium, said Miranda Martinez, insurance product manager at the Automobile Club of Southern California.
Even if a student takes his car to campus, she may still qualify for a lower rate if she’s relocating from the city to a quiet college town or if she’s driving fewer miles each year. But that can cut both ways: A student from a suburb who moves to a big-city campus like USC may see higher rates, Miller said.
Kroll cautioned against dropping the student or her car from the policy altogether, even if the vehicle would be left at home, since the premium savings probably wouldn’t outweigh the added risk of having an uninsured driver at school and an uninsured car at home.
* Homeowners: Those who are sending children to college with expensive laptop computers or stereos should also check their homeowners coverage. Most policies will cover possessions in the dorm, Miller noted. But policies vary, so it’s important to read through the insurance contract to see precisely what’s covered.
Many companies extend coverage only to students living in dorms, for example. Once the student gets an apartment off campus, he or she would need a separate renter’s policy.
Other companies, such as the Auto Club, cover students as long as they remain “resident relatives,” regardless of whether they are in dorms or apartments, Martinez said. A resident relative is a dependent who gets mail at the parents’ address and regularly returns there when on school break.
But there are other limitations too. Extended homeowners coverage cuts off at a certain age -- anywhere from 21 to 24, depending on the contract -- and upon graduation. There also are likely to be dollar limits on certain types of losses, most notably electronics, so those with unusually expensive laptops might need to insure them with a separate rider.
If the parents’ coverage is inadequate, it may make sense to buy the student a renter’s policy, Kroll said. These policies are relatively cheap, running about $75 to $100 a year for about $10,000 in coverage, he added.
* Health: Health insurance, particularly for students going out of state, can be a bigger concern for those covered through health maintenance organizations and preferred provider networks, Kroll said. It’s smart to check whether the plan has doctors and hospitals near campus and what the policy is if none are nearby. Some plans will cover the child but at a reduced reimbursement rate. Others provide no out-of-network coverage.
Parents who have restrictive health coverage may want to investigate what the college offers, Kroll noted. Most extend group health coverage to students through a university plan.
Communications
Homesick freshmen are notorious for ringing up triple-digit phone bills, but the advent of cellphones and prepaid calling plans has lessened the costs, many experts say.
Simon Canasi, senior vice president at Merrill Lynch & Co. in Tampa, Fla., said he did three things when he sent his 18-year-old daughter, Brittany, to Florida State: He upped the minutes on her cellphone plan, for about $10 a month; got her a new number, so the area code would be local to the school; and made sure that in-network minutes wouldn’t count against the family’s monthly airtime allotment.
The plan he ordered doesn’t charge extra for long-distance calls within the company’s coverage area and doesn’t count minutes for calls between people using the same cellphone carrier.
That saves Canasi a fortune when Brittany wants to call her family, now 250 miles away but within the same cell network. Also, because going over allotted minutes is more than twice as expensive as buying more minutes in advance, he figures the extra $10 is well worth the price.
Why did he change the area code on his daughter’s phone? He wanted it to be local to the school so that her friends and teachers wouldn’t have to pay toll charges to return her calls.
Parents who want to limit the student’s usage might also consider prepaid calling cards and prepaid cellphone deals, Kroll said. These deals are sometimes more expensive but they put the student on a strict budget.
Cash
Getting cash to a distant student also doesn’t have to be a costly proposition for those who plan ahead. Both Kroll and Canasi addressed it by setting up joint bank accounts and low-limit credit cards for their 18-year-olds.
Kroll said his joint checking account with his son Alex allowed him to monitor the account and deposit and withdraw money at will. Alex also got a credit card, with a $500 spending limit, to handle emergencies, Kroll said. Canasi did almost exactly the same but exchanged the checking account for an account hooked to a debit card.
As long as the bank accounts are jointly held, minimum balances in the parent’s account can help waive fees on the child’s account, bankers note.
No-fee credit cards are easy to secure these days -- even for teens with little or no credit history. However, the interest rate on a card issued solely to the teen is likely to be high. Parents should be sure to counsel their students to be sparing with credit-card purchases and to pay off balances as quickly as possible.
Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof @latimes.com. For past columns, visit latimes.com/kristof.
