Buying life insurance for your college student

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Buying life insurance for college students may seem unusual. After all, most college students don’t have dependents relying on their income. But if your adult child has student loan debt, college life insurance could make sense. In fact, any financial responsibility you’ve taken on in conjunction with your college student could leave you with some monetary fallout if anything happens to your child.

Understanding when life insurance for students might be beneficial could help you decide if you should get a quote for your child. Bankrate is here to help you decide if life insurance is right for your college student, what kind of policy and how much coverage you might want to purchase, and how to get started choosing a policy.

Why would you buy life insurance for your college student?

If you share financial responsibility with your college-aged child for certain debts, you could be on the hook for the remaining balance if your child were to pass away. Student loans may help your child get an education, and the hope is that when your child graduates, they’ll earn enough to be able to pay back the debt on their own. But in the unfortunate event that your child dies prematurely, you may want some financial protection. You might consider student life insurance if you share any of the following debts with your child:

  • Cosigning mortgages: If you cosign a mortgage with your child and your child passes away and is therefore unable to make the payments, the lender can pursue you. That could be tough on you financially if your child passed away without any assets.
  • Cosigning car loans: Similarly to a mortgage, if your child passes away and can’t make an auto loan payment, you could find yourself having to pay or having the vehicle repossessed.
  • Joint cardholders on credit cards: If you cosigned on a credit card for your college student, you’re just as responsible for the debt as they are. This shouldn’t be a problem if your child keeps up with the monthly payments, but if they’re carrying a balance when they pass, a life insurance policy could protect you from taking on that debt.
  • Student debt: Americans have more student loan debt than they do credit card debt. $1.7 trillion in student loan debt across a total of 42.9 million borrowers means an average balance of about $39,797 per student loan borrower in private and federal student loan debt. While parents can’t cosign on most federal student loans and aren’t responsible for repaying them if their child passes, private student loans are another matter. Many private lenders require a cosigner and about 93% of private student loans are cosigned. The cosigner is responsible for repaying the debt if the borrower passes, sometimes even all at once.

What kind of student loans could make life insurance helpful?

The U.S. Department of Education issues and guarantees federal student loans, which are discharged after the borrower passes away. If your child has only federal student loans, you may not need to contact a life insurance company for a quote, at least not on account of student loan debt. The same is true if you took out a federal Direct PLUS loan for parents. If you take out a parent PLUS loan on your child’s behalf and they pass away, the debt will be discharged. And if you die while the loan is outstanding, the loan will also be discharged. You’ll just need to provide proof of death to the loan servicer.

In the years before 2017, that discharged student loan debt would be considered taxable. But the Tax Cuts and Jobs Act of 2017 provided for the exclusion of debts discharged due to the death of the student or the borrower until 2025. This rule may be extended. As of now, the IRS specifies that this scenario won’t result in a tax bill for parents.

But the share of students taking out private student loans has increased each year since 2012 as college costs rise. Students often need to borrow from a private lender to finance their education, and most private lenders require a cosigner. These non-federal student loans, which are issued by banks, credit unions and online lenders, are not guaranteed and the lender is not required to discharge the debt upon the student’s death.

In fact, some private student loans have provisions in the contract that can cause an automatic default if one of the cosigners dies. That means if you or your child die with an outstanding private student loan, the lender can try to collect the entire balance from the surviving cosigner at once.

The last thing your college student should have to worry about is their entire loan balance becoming due upon the death of a parent or loved one who cosigned for them. Therefore, you may want to purchase a life insurance policy for yourself if you’ve cosigned on a private student loan for your child. Long story short, if private student loans are included in the equation, it could be wise to purchase life insurance for both yourself and your child.

What kind of life insurance is recommended for college students?

While a whole life policy builds cash value and can be a great tool for estate planning, it may also cost more than other types of life insurance coverage. Additionally, many states limit whole life coverage to people 45 years of age or older. If you are wanting to explore other options, a term life insurance policy might be a good choice, and college students might be able to get low rates due to their age. A term life insurance policy covers the insured for a fixed period, usually 10 to 30 years. If the insured dies during the policy term, the beneficiaries receive a payout. The policy expires when the term ends unless you opt to renew it or convert it to a permanent policy.

Term life insurance could allow you to purchase a policy to cover your college student while they’re still paying off their private student loans or other debts. Once the debt is paid, the risk of you needing to make the monthly payments is gone, so you may no longer need a policy. The cost of term life insurance is usually very affordable. Some insurers may even allow you to add a child rider to your own policy that will cover your college student. The limits on child riders are usually lower than what you could get on a separate policy, but if your child doesn’t have much debt, it could be a good option.

How do you buy life insurance for your college student?

To purchase a policy on behalf of your college student, you’ll first need their permission. You’ll also need to prove an insurable interest, which means that you would experience a financial loss if your child died. Your cosigned loan documents should be sufficient as proof of insurable interest. Here’s how to go about getting a life insurance policy for your child:

  1. Calculate how much coverage you need. You might choose to base this on the amount of debt your child has and the estimated number of years it will take for repayment.
  2. Consider adding a child rider to your policy. If you’re interested in adding a child rider to your own life insurance policy and your current life insurance company doesn’t offer one for college students, consider switching life providers.
  3. Compare quotes from different insurers. You may want to start with the largest life insurance companies, or you might want to try one of the new financial technology startups that offers an online-only process. Get a handful of quotes so you can find the lowest rate for your child.
  4. Fill out the application. You’ll likely need to sit down with your child to do this, as you’ll need specific information about their health.
  5. Schedule a medical exam. This step might not always be necessary; some companies offer no-exam policies. But if you do need to schedule an exam, be sure to ask the agent or insurance company how to proceed. Some companies have specific vendors that they use, and the carrier might even arrange for a nurse to come to your home.
  6. Sign the policy. Once the policy has been approved, you’ll need to sign and make the first payment.
  7. Pay the premium. Most companies have monthly payment plans for life insurance, and you might want to consider signing up for automatic payments. You may also be able to  pay the premium quarterly, semi-annually or annually. If you do not pay the premium on time, the policy will lapse and coverage will end.

Frequently asked questions

Should college students get their own life insurance?

If you want your college student to learn about insurance and financial responsibility, having them purchase their own policy and listing you (or the cosigner of their debts, if that’s not you) as the beneficiary could be a great learning experience. However, if your child owns their own life insurance policy, they’ll be responsible for paying the premium to keep the policy active. If you would rather ensure that the policy doesn’t lapse so that you have the protection you need as a cosigner, you might want to purchase the policy yourself.

Can a child rider be converted to a whole life policy later on?

Potentially. Many life insurance providers allow you to convert a child rider to a whole life policy for your child upon the age of maturity (when the rider is scheduled to expire). Sometimes, the insurer will limit the face value of that whole life policy based on how much coverage you had for the rider. For example, you might have $10,000 in coverage via a child rider, and your insurance company may only allow you to convert to a whole life policy up to five times that value. If that’s not enough coverage for your child once they age, you might want to purchase a separate policy for your child from the get-go.

What kinds of insurance should I purchase for my college student?

Life insurance is optional but important if you share debts with your child. Other types of insurance are also important. Car insurance is required in nearly every state; if your child drives, they should be listed on your policy or have a policy of their own, depending on who owns their vehicle. Renters insurance is also a key part of your child’s financial wellbeing at college. A renters policy provides coverage for your child’s belongings in their apartment or rented home while at college and also provides liability coverage in case someone is injured or your child damages someone else’s property.

Written by
Lindsay Frankel
Insurance Contributor
Lindsay Frankel has three years of experience writing for insurance domains such as Bankrate, Insurify, FinanceBuzz, NextAdvisor, Coverage.com, The Balance and The Simple Dollar. She has covered common insurance product lines such as auto, home, life, renters and small business insurance.
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