Parents’ Guide To Keeping Your Children on Your Insurance: Pros & Cons

Adding children to insurance policies like car insurance and health insurance will likely seem like a natural decision for many parents, and it is often more cost-effective than buying separate policies for them. That said, your child may not be allowed to stay on your insurance once they grow older and/or move out of your house, so you should be proactive about looking into alternative auto and health insurance options to make sure your child doesn’t end up uninsured.

Continue reading to learn more about how to keep your child on your insurance policy and when it may be more appropriate to drop them from your coverage.

How To Keep Your Child on Your Insurance

If your child is already covered by your insurance, you shouldn’t need to take any additional steps to keep them on the policy as long as they are eligible to remain on it. Meanwhile, the process of putting a child on your insurance for the first time can vary depending on the type of policy you’re adding them to, but it generally involves contacting your insurance company directly or going through a mobile app or online portal to provide the insurer with your child’s information.

In the following sections, you’ll see more detailed discussions of when you can and should keep your children on various types of insurance policies.

Health Insurance

In general, a child can remain on a parent’s health insurance plan up to age 26. Your child’s coverage may expire as soon as they turn 26 if you have an employer-sponsored health insurance plan, while it will instead expire at the end of the year they turn 26 if you have a Health Insurance Marketplace plan.^[1]

However, some states allow children to be covered by their parents’ plans beyond age 26 in certain circumstances. Below is a table that lists the stipulations that must be met for a child to stay on their parent’s coverage for an extended period of time and the age at which this coverage expires in applicable states.

Keeping your children on your health insurance is often more cost-effective than buying them a separate plan, especially if you have a larger family. The out-of-pocket limit for a Marketplace family plan is often double that of an individual plan, which means families of more than two can reach their out-of-pocket maximum and enjoy free health care for the rest of the year more quickly if they’re all on the same plan.^[10] In addition, health insurers can only consider up to three children under the age of 21 when setting rates for family plans.^[11]

Even so, there are some situations in which it could be beneficial for your child to get their own health plan before turning 26, such as if they have access to more affordable coverage through work, or if you no longer claim them as a tax dependent and their income is low enough to qualify for subsidies, like premium tax credits and cost-sharing reductions, through the Marketplace.^[12]

Can You Keep Your Child on Your Insurance After Age 26 if They Have a Disability?

One common exception to the maximum age rule presented in the previous section is if your child is disabled, with many health insurance plans continuing to cover a dependent child with a disability beyond the age of 26 and some states — like Illinois — even requiring health plans to do so.^[3]

For example, a federal employee may keep their child on their health insurance indefinitely so long as the child had a physical or mental disability before turning 26, the disability is expected to persist for at least a year and the child is unable to work a self-supporting job because of the ongoing disability.^[13]

Car Insurance

Unlike health insurance, car insurance doesn’t have a standard age at which a child can no longer be covered by their parent’s policy, although some carriers may charge additional fees if your child stays on your policy past the age of 24.^[14]

You may want to keep your young adult on your car insurance up to at least age 25, because this is generally cheaper than purchasing a separate policy for them.^[15]

Keep in mind that car insurance is often more expensive for teenagers than any other age group due to their lack of driving experience and predisposition to getting into car accidents.^[15] As a result, you will likely want to maximize cost-saving opportunities for your dependent children while they are still young drivers.

Can You Keep Your Child on Your Car Insurance After They Move Out?

You typically cannot keep your child on your car insurance policy after they move out of your home. Nevertheless, you generally can keep them on your policy while they are a full-time student living on campus as long as they still consider your home to be their permanent address.^[16]

Life Insurance

You are free to add your child to your life insurance policy as a beneficiary, but they may not be able to claim the death benefit after you die unless they have reached the age of majority, which is usually 18 or 21, depending on where you live. For this reason, you may want to appoint a trustee or custodian as the beneficiary instead, so they can manage the life insurance payout temporarily in case you die while your child is still a minor.^[17]

Can You Keep Your Child on Your Life Insurance Policy as a Dependent?

You may be able to purchase a dependent life insurance policy to cover your child, meaning you would receive a death benefit in the event that your child dies while the policy is active. However, you may no longer have the option to buy a policy on your child’s behalf after they turn 26.^[18]

Since you likely won’t be reliant on your dependent’s income and they may not have an income to replace at all, dependent life insurance policies typically provide smaller death benefits that are designed to help you cover final expenses, such as your child’s funeral or burial.^[18]

Pros and Cons of Keeping Your Child on Your Insurance

Opting to keep children on your insurance plan can make it simpler and more affordable to cover them while they are dependent on you, but it may be less beneficial when they are older and more independent. If you are in charge of obtaining coverage for your child, it will likely be easier to manage a single policy for the entire family rather than multiple separate policies.

Additionally, when you add your child to your insurance policy, they may benefit from your safe driving record, active discounts and any other factors that would make it cheaper for them to be on your policy. This will likely be appealing to you if they are still your dependent and you are covering all of their expenses. Conversely, if your child is older and has an income, then it’s reasonable to expect them to start managing their own finances, which may include purchasing insurance for themselves.

Keeping an otherwise independent child on your policy may prevent them from learning necessary life skills and will end up costing you more money, especially if your child has characteristics that drive up the rates of your shared insurance policy like an at-fault car accident. Another issue to consider is that, if your health plan doesn’t cover out-of-network care, your child might not be adequately covered by your plan if they go to college out of state, since they might not live near any in-network providers.

What Insurance Options Are Available if Your Child Is No Longer Eligible To Stay on Your Policy?

Once your child is no longer eligible to stay on your health plan, their best option may be to join a plan through their employer or the Marketplace. If you still claim them as a tax dependent past the age of 26, you can even sign them up for their own plan through your application on the Marketplace during open enrollment. You should also note that your child will qualify for a special enrollment period that allows them to join a new Marketplace plan after they lose coverage under your work-based plan, regardless of when this happens during the year.^[12]

Meanwhile, if your child plans to move out soon and will no longer be covered by your car insurance, make sure they prioritize purchasing a policy for themselves.

Driving without car insurance is illegal in almost every state and creates a lapse in coverage that could raise your child’s car insurance premiums whenever they shop for insurance. According to Dominick Tomanelli, a personal finance expert and the co-founder and CEO of Promobile Marketing, it’s crucial to be proactive when it comes time to put your child on their own policy.

“The best strategy is to keep your child on your insurance for as long as practical, but always have a backup plan,” Tomanelli said in a message to SmartFinancial. “The biggest mistake is waiting until the last moment and scrambling for a solution that may not be ideal. Talk to your provider, research other policies and have everything lined up so that, when the time comes, you can make the switch seamlessly.”

6 Steps To Ensure Your Child Stays Covered

Taking the following steps can help you verify that your child is properly insured:

1. If your child is attending school out of state, pay attention to how coverage will work for them under your policy while they’re away from home.
2. Make sure you know when your child will no longer be allowed to stay on your policy.
3. Start the process of transitioning your child to their own policy early so they won’t experience a lapse in coverage.
4. Help your child assess their various options and pick the type of insurance policy or health plan that best suits their needs as a newly independent adult.
5. Encourage your child to shop around and compare quotes from multiple insurance companies to make sure they’re getting the best deal on the coverage they need.
6. Contact an insurance agent or financial adviser for guidance if you or your child are having trouble finding an appropriate policy.