Take out life insurance for your college student
Buying college student life insurance may seem unusual. After all, most college students have no dependents who depend on their income. But if your adult child is in debt, college life insurance can make sense. In fact, any financial responsibility you have assumed in connection with your college student could result in financial repercussions if something happens to your child.
Knowing when student life insurance might be beneficial can help you decide whether to get a quote for your child. Bankrate will help you decide whether life insurance is right for your student, what type of policy and how much coverage to get, and how to start choosing a policy.
Why should you get life insurance for your student?
If you share financial responsibility for certain debts with your college aged child, you could be held liable for the balance if your child dies. Student loans can help your child get an education and the hope is that when they graduate, your child will earn enough to be able to repay the debt on their own. But in the unfortunate event that your child dies prematurely, you may want financial protection. You can consider student life insurance if you share any of the following debts with your child:
- Co-signing of mortgages: If you take out a mortgage with your child and your child dies and therefore cannot make the payments, the lender can pursue you. That could put a strain on you financially if your child dies with no assets.
- Sign car loans: Similar to a mortgage, if your child dies and cannot pay the car loan, you may have to pay or repossess the vehicle.
- Common cardholders on credit cards: If you co-signed a credit card for your college student, you are just as responsible for the debt as they are. This shouldn’t be a problem if your child keeps up with monthly payments, but if they have a balance when they die, life insurance could protect you from taking on that debt.
- Student Debt: Americans have more student loan debt than credit card debt. $ 1.7 trillion in student loan debt for a total of 42.9 million borrowers translates into an average balance of approximately $ 39,797 per student loan borrower in personal and federal student loan debt. While parents cannot co-sign most federal student loans and are not responsible for repayment when their child dies, private student loans are a different matter. Many private lenders require a co-signer and approximately 93% of private student loans are co-signed. The co-signer is responsible for paying back the debt when the borrower dies, sometimes all at once.
What Kind of Student Loans Could Life Insurance Provide Help?
The US Department of Education issues and guarantees federal student loans that are paid out after the borrower’s death. If your child only has a federal student loan, you may not need to contact life insurance for a quote, at least not because of the student loan debt. The same applies if you have taken out a federal direct PLUS loan for parents. If you take out a Parent PLUS loan for your child and they die, the debt will be paid. And if you die during the life of the loan, the loan will be repaid as well. All you need to do is present the proof of death to the loan administrator.
In the years prior to 2017, this paid student loan debt would be considered taxable. However, the Tax Cuts and Jobs Act of 2017 provided for debt exclusion due to the death of the student or borrower until 2025. This regulation can be extended. As of now, the IRS states that this scenario will not result in a tax bill for the parents.
But the percentage of students taking out private student loans has increased every year since 2012 as college costs rise. Students often need to borrow from a private lender to fund their education, and most private lenders require a co-signer. These non-federal student loans, issued by banks, credit unions, and online lenders, are not guaranteed and the lender is not required to pay the debt after the student dies.
In fact, some private student loans have provisions in the contract that can result in automatic default if one of the co-signers dies. That said, if you or your child dies with an outstanding student home loan, the lender can attempt to collect the entire balance from the surviving co-signer at once.
The last thing your college student should worry about is that their entire loan balance will come due after the death of a parent or loved one who signed for them. Therefore, if you co-signed a private student loan for your child, you may want to get life insurance for yourself. In short, when private student loans are included in the equation, it might be wise to get life insurance for you and your child.
Which life insurance is recommended for students?
While a life insurance policy creates cash value and can be a great tool for estate planning, it can also cost more than other types of life insurance protection. In addition, many states limit lifetime coverage to those who are 45 years of age or older. If you’re looking to explore other options, term life insurance can be a good choice, and college students may be able to get low rates because of their age. Term life insurance covers the insured for a fixed period of time, usually 10 to 30 years. If the insured dies during the insurance period, the beneficiaries receive a payment. The policy expires at the end of the term, unless you extend it or convert it to a permanent policy.
Term life insurance could allow you to take out a policy to protect your student while they are still paying off their private student loans or other debts. Once the debts are paid off the risk of having to make the monthly payments is gone and you may not need a policy anymore. The costs of term life insurance are usually very cheap. Some insurers may even allow you to add a child driver to your own policy to cover your student. Child driver limits are usually lower than what you could get with a separate policy, but if your child doesn’t have a lot of debt this could be a good option.
How do you get life insurance for your college student?
To purchase a policy on behalf of your college student, you first need their permission. You also need to demonstrate an insurable interest, which means that if your child died, you would suffer financial loss. Your co-signed loan documents should suffice as proof of insurable interest. How to get life insurance for your child:
- calculation how much coverage you need. You can decide how much your child owes and how many years it is likely to take to pay off.
- Consider adding a child driver to your policy. If you’re interested in adding a child driver to your own life insurance policy and your current life insurance company doesn’t offer one for college students, consider switching life insurance providers.
- Compare offers from different insurers. You might want to start with the largest life insurance companies or try one of the new financial technology startups that offer an online-only process. Get a handful of quotes so you can find the lowest price for your child.
- Please, fill in the application! To do this, you will likely need to sit down with your child as you will need specific information about their health.
- Arrange a medical examination. This step may not always be necessary; some companies offer guidelines without review. However, if you need to schedule an exam, ask the agent or insurance company how to proceed. Some companies have specific providers that they use and the carrier can even arrange for a nurse to come to your home.
- Sign the policy. Once the policy is approved, you will need to sign and make the first payment.
- Pay the premium. Most companies have monthly life insurance payment plans and you should consider signing up for automatic payments. You can also pay the premium quarterly, semi-annually or annually. If you do not pay the premium on time, the policy expires and the insurance cover ends.
frequently asked Questions
Should students get their own life insurance?
If you want your college student to learn about insurance and financial responsibility, having them buy their own policy and list you (or their debt co-signer if that’s not you) as a beneficiary can be a great learning experience. However, if your child has their own life insurance policy, they will be responsible for paying the premium to keep the policy active. If you’d rather make sure the policy doesn’t expire in order to have the protection you need as a co-signer, you can purchase the policy yourself.
Can a child driver be converted to life insurance at a later date?
Possibly. Many life insurance providers allow you to convert a child driver into life insurance for your child when they are of legal age (when the driver expires). Sometimes the insurer limits the face value of this life insurance policy based on how much coverage you had for the driver. For example, you could have $ 10,000 coverage through a child driver and your insurance company may only allow you to convert to a life insurance policy up to five times that amount. If this is not enough for your child in old age, you may want to get a separate policy for your child from the start.
What insurance should I take out for my student?
Life insurance is optional but important if you share debts with your child. Other insurances are also important. Auto insurance is required in almost every state; If your child drives, they should be on your policy or have their own policy, depending on who owns their vehicle. Rent deposit insurance is also an important part of your child’s financial well-being in college. A tenant policy covers your child’s belongings in the apartment or rented house while they are studying and also provides liability insurance in case someone is injured or your child damages someone else’s property.