Should you consider tuition insurance?

"If they have a history of chronic asthma, and withdraw, they're covered," Suneson says. "If they start school and contract mono, and try to buy insurance, we're not going to pay."

Next Generation also has partnered with Sallie Mae to include up to $5,000 in tuition refund insurance with its Smart Option Student Loan program. By the end of 2011, the company will institute a separate insurance program for Sallie Mae customers, according to Suneson.

A rival insurer, A.W.G. Dewar, has offered tuition refund coverage since 1930, and claims to have originated this type of policy in the U.S. Dewar's Tuition Refund Plan is not universal, but limited to a group of about 1,300 mostly private schools, including about 150 elite colleges and universities.

Coverage varies

Each school participating in the Dewar plan fields a customized policy, with costs ranging from 1 percent to 5 percent of its tuition and fees, according to Carmen Duarte, a corporate spokeswoman for Dewar, which is part of OneBeacon Insurance Group.

For example, the cost of Bard College, a small liberal arts college in New York's Hudson Valley, for the 2011-12 year ranges from $43,600 for a returning off-campus student to $56,962 for a first-year student living on campus.

Bard's tuition refund plan charges $467 a year for an on-campus student and $362 for a nonresident, according to information on the website. Coverage includes total reimbursement of the insured term tuition and fees for injury and sickness withdrawals and 60 percent for mental health withdrawals.

The policy coordinates with Bard's refund schedule, which ranges from 80 percent back for a withdrawal in the first week down to no refund after the fourth week. "After the college's refund policy expires, our benefits typically become the only source of refund available," Duarte says.

Like any insurance, Dewar's plans stipulate certain exceptions, including those for "war, riot, nuclear reaction, illegal drug use, and intentional self-inflicted injury or sickness," according to Duarte.

Whether your child is attending a state school or an Ivy League institution, weigh the investment -- and risks -- before deciding if tuition insurance makes sense.

"Paying for college is the second biggest investment most families will make," Suneson says. "People buy travel insurance, they buy wedding insurance -- why not protect your investment?"


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