Life Insurance For College Students

    Everything You Need To Know About Life Insurance For College Students

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    Most parents might not think of life insurance as a priority purchase for their child who is still in college. Aside from being a morbid thought, life insurance can just seem like another expense added on top of your existing financial commitments. 

    However, the truth is that life insurance can actually provide you with a great safety net in the event that your child passes away before their student loans are paid off. Let’s take a look at why you should purchase life insurance for your college-aged child in our guide below. 

    Why Do College Students Need Life Insurance?

    On the surface, it might not make sense to buy life insurance for a college student. Alongside college tuition, you might also be shelling out money for dormitory fees, food, textbooks, and other requirements. Here are a few reasons why buying life insurance might be a good idea for a college student. 

    Paying Off Student Loans

    College tuition is expensive, with the average student’s tuition costing around $10,000-$25,000 USD for public colleges and around $35,000 USD for private ones. Most college students fund their education through student loans which are paid off within 10-15 years. Whether getting life insurance is a good idea or not will depend mostly on what kind of student loan you end up going with. 

    There are two main types of student loans: federal loans and private loans. Federal student loans are issued by the Department of Education, usually don’t require a co-signer, and are discharged upon the death of the borrower. On the other hand, private loans are issued by credit institutions, require co-signers, and are not automatically discharged upon death. Buying a life insurance policy makes sense if you chose the latter.

    Co-signing a private student loan with your child means that, if they die, the student loan debt will be transferred to you and will become your sole responsibility. Some lenders might even go into “automatic default” after the death of the main borrower, which means the debt balance becomes due immediately. This unexpected financial burden can put a strain on your savings, which is why getting a term life insurance plan to cover the period of the loan and help pay for the balance is a good precaution if the worst happens.

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    Funeral And Burial Expenses

    Another thing that life insurance can help you with is settling your child’s end-of-life fees. Funerals and burials are costly, and can also catch your family off-guard if no preparations were made beforehand (which is most likely the case since your college student is still young and healthy). The money provided by the life insurance policy’s death benefit can be used to finance payments in the event of sudden death.

    To Cover For Dependents 

    It’s not uncommon for people to get married or have kids while in college. There are also many older married people who have delayed their college education or are coming back after some time off. Being in this situation means that your child is responsible not just for their own finances, but the finances of their dependents as well. 

    Life insurance policies can help provide their dependents with financial protection in the event of their untimely passing. The money they receive can be used to fund the debt left behind, funeral expenses, and can even be used to replace income to help your family get back on their feet. 

    To Cover Other Loans 

    College students might sometimes be a co-signer on other loans or debts alongside their parents. It’s also very common for parents to co-sign car loans or credit cards with their child, especially if it’s their first one. Some parents might also let their kids co-sign on mortgages. Life insurance policies can help pay for these loans in the event that your child passes away before they are fulfilled. 

    What Kind Of Life Insurance Should You Get?

    There are two main types of life insurance: permanent life insurance and term life insurance. A permanent life policy provides you with insurance throughout your life while also providing a savings component called cash value. On the other hand, term life insurance is cheaper and covers you for a set period only. Between the two, a term policy is definitely the best way to go for insuring your college student. 

    Term life insurance is almost 5x cheaper than a permanent policy. It also allows you to choose just how long you want the insurance coverage to be. You can choose to have only the repayment schedule of the debt covered or you can choose to renew the policy and extend it longer once coverage is over. 

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    How Much Coverage Do You Need?

    It’s quite possible to get either too much or too little coverage when buying a term life policy. To prevent this from happening, you will need to calculate how much money you need to be insured for and for how long you need the policy to last. 

    First, you need to estimate how much your loan balance will be plus the interest it will accrue. Most private student loans have either a fixed or variable interest rate. Fixed private student loans will run you anywhere between 6% and 13%. Variable student loans will fall between 4.5-4.9% and can go up to around 11-12%, depending on the lender. It is important that you take into account the interest that will be added on top of the initial loan when shopping for a life insurance policy. 

    Next, you will have to compare offers and choose a policy that will cover you throughout the repayment period. If your loan’s term length is 10 years, then you should choose a policy that covers you until those 10 years are up and you’re sure that you will have repaid the debt in full. Otherwise, your college students will have a gap in their coverage and you might be stuck with footing the remaining balance out of pocket. 

    How Do You Buy Life Insurance For College Students?

    Buying life insurance for a college student is very similar to buying life insurance for yourself, with some added steps that you will need the help of your child on. Here are the basic steps in purchasing policies for those college students who need life insurance. 

    • Determine Your Coverage Needs: Compute the total amount of the loan and choose a policy that can cover you throughout your repayment period. 
    • Comparison Shop: Shop around and choose the right insurance company that can accommodate your specific needs. Make sure to compare offers because different companies will have different preferences. One insurance company might have a different set of premium rates from another, and these are usually affected by your child’s health and activities. 
    • Submit An Application: After choosing an insurance company, fill up an application form. You will need the help of your kid with this step since they will need to answer questions about their health and activities. You will also need to provide proof of insurable interest (your co-signed loan in this scenario). 
    • Wait For Underwriting Approval: Once your application has been submitted, all that’s left to do is to wait for the approval of your request. Make sure to arrange your payment plan once your policy is issued by the insurance provider!
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    Conclusion: Do College Students Need Life Insurance?

    Life insurance may not be the first thing on your mind as a necessary purchase for college students. However, if you have a private student loan, then a life insurance policy will help provide you and your family with some much-needed financial security. As a parent, this type of loan might leave you with major debt if the unthinkable were ever to happen while your kid is still at school. 

    Other loans, such as mortgages or car loans, might also be reasons to invest in a life insurance policy. Your best bet would be to find a term policy that provides enough coverage to pay for the remaining balance. It might be morbid to think about, but a life insurance policy will be your best option to protect your finances from unforeseen circumstances.  

    If you’re a parent and you’re confused by all of this, don’t worry! Wesley Insurance, LLC is here to help. We specialize in all things insurance and investments. Give us a call today to find out what we can do for you!

    Written By Cameron McDowell
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