If a student withdraws after the first week, for example, and the college returns 75 percent of the payment, the insurance would cover the remaining 25 percent. But some policies do not provide a 100 percent payback if a student leaves because of mental illness or psychological problems.
Types of coverage
A limited number of companies offer tuition insurance. Next Generation Insurance Group writes policies that can be applied to any college or university in the country, according to Bill Suneson, the company's co-founder and president.
The company's GradGuard.com coverage starts at an annual payment of $239 for $5,000 in coverage for a semester, or $10,000 for the year, and ranges up to $599 for $25,000 for a semester or $50,000 for the year.
"Like any insurance product, it's a matter of risk tolerance," Suneson says. "I don't think it hurts for students to have some level of refund insurance."
The policy can be invoked for a 100 percent refund for tuition, books and fees should a student leave school due to physical or mental illness, an accident, or the death of a parent or payer.
The GradGuard coverage also includes other benefits, such as a registry to protect against identity theft; up to $50,000 in emergency medical evacuation insurance; up to $1,000 toward computer repairs and five years of extended warranty coverage on eligible products costing up to $5,000. "The (latter) are the risks students face when they go away to college," Suneson says. "We did research to identify the common risks."
Know the fine print
Because tuition insurance policies shield a financial risk, they are not typically subject to clauses barring coverage for preexisting conditions. At the same time, GradGuard wouldn't cover an accident or new illness diagnosed immediately prior to the purchase of a policy, Suneson says.