Why every parent should take out life insurance on their college bound child

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By Forbes

Insurance is a tricky subject, and it’s also one that many people don’t like to talk about because of the morbidity of it. But the fact is, people die, including students. And in some cases, it can make sense for college students and young adults to have life insurance.

However, no parent ever wants to think about the loss of their child. But you know what’s worse? Being burdened by debt along with despair in the event a loss happens. It’s for this reason that life insurance could make sense for some students.

The key driver of whether you should purchase life insurance for your student is simple: does your college student have private student loans with a parent being the consigner? If so, the answer is a resounding yes. Otherwise, you may not need any insurance on your student.

Here’s why.

A Tragic Story

Take the story of Christopher Brinski, who went to college to better himself and make his family proud. However, Christopher Brinski was 25 years old when he died from a tragic accident. At the time of his death, he had over $40,000 in private student loans which his parents consigned for him.

The trouble is, unlike Federal student loans, private student loans aren’t discharged upon the death of the borrower. Instead, the consigner is responsible for the remaining debt. So, not only were Christopher’s parents faced with the death of their son, but they were also faced with his debt. They had to call the bank during their time of mourning and express their concerns about being able to pay the bills on the debt. It wasn’t until public pressure mounted that the bank agreed to discharge the debt.

For many parents and borrowers, they won’t be able to force banks to dismiss the debt. What they see as an option to help pay for their children’s education could come back and hurt them financially. They don’t realize that they are liable for the debt if they cosign the loan. New legislation (named in honor of Christopher Brinski) is trying to be passed that would make this clearer, but the fact is, if you cosign a student loan, you owe it too.

 

The Safe Solution Using Life Insurance

In cases like these, where a student takes on private student loans with a consigner, it can make a lot of sense to take out life insurance on the borrower, with the consigner being the beneficiary.

In Christopher’s case, his family could have taken out a term life insurance policy on him for $50,000 (a little more than the loan amount to account for interest that accrues). For a healthy college student, this would cost around $5 per month. Over the life of a 10 year student loan, the total cost would only be $600. This is a small price to pay for financial security.

Having private student loans is one of the rare circumstances where it makes sense to insure a healthy young person with no assets or people depending on them.

Important Reminders

It’s important to remember that insurance serves a specific purpose – to protect people that possible depend on you. In the case of a student, it’s to protect your family from the burden of your consigned debt.

If the student doesn’t get any loans consigned, there is no need for insurance to protect his family. If the student has Federal student loans and passes away, the loans are automatically discharged. If the student has private loans but didn’t have a cosigner, the lender can use any money in the student’s estate to pay for the loan. However, if the borrower was a poor college student, there won’t be much to pay for and the loan will be discharged.

Don’t let one tragedy turn into two. If you are cosigned on a private student loan, get life insurance on the borrower to be safe.

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