Death isn’t something students usually think about. They’re younger. They’re healthier. They’re statistically less likely to die.
But for students financing their education with loans, death could mean passing on the burden of debt to their families.
Though all federal loans, such as Perkins and Stafford Loans, are discharged in the event of a student’s death, repayment of private loans falls on the loan’s cosigner – often the student’s family.
When a student applies for a private loan with a cosigner, most loan contracts include a clause requiring the borrower’s cosigner to assume all debts in the event of the student’s death. For students with these loans, life insurance is something that could free cosigners of that burden.
But it is an option few students with private loans pursue and one that life insurance companies rarely advertise.
“It costs a lot to go to college now,” said Jim Turner, a State Farm agent who sells life insurance in Evanston. “But if the student passes away, banks are definitely going to try and recoup their money from somewhere. They are going to make a valiant effort to get their money back.”
For these students, Turner said a life insurance policy is something they should consider.
“As a student, you’re taking on that debt, and for the most part, if something happens to you, someone is going to have to pay,” he said.
“You’re owning up to the responsibility that, ‘If something happens to me, I know my family is not going to be responsible for paying off this debt of mine.'”
Sallie Mae, whose Web site claims to be the nation’s leading provider of student loans, requires repayment in the event of a student’s death.
“The loan contract clearly states that the loan is not dischargeable if the student dies, and this is one of the reasons that Sallie Mae always encourages families to use private loans as a last resort after exhausting other financing options,” said Sallie Mae spokeswoman Patricia Nash Christel in an e-mail.
In the event of a death, Sallie Mae works with the loan’s cosigner to provide assistance and flexibility, she said.
By opening a life insurance policy with their cosigner as the policy’s beneficiary, a student can safeguard against transferring debt. In the event of a student’s death before the loan is repaid, the cosigner could repay the student’s loans with the life insurance money.
Turner and Mike Roeser, who sells life insurance at Heil & Heil Insurance Agency in Evanston, said they have never had a student or a parent inquire about insuring a student’s life, but both agreed purchasing a life insurance policy at a young age is beneficial.
A term life insurance policy is fairly cheap for a student between 18 and 22, Roeser said. He said a 10-year, $100,000 policy would cost a 20-year-old student in good health $81 a year, or roughly $7 per month.
Younger people get lower rates and they can keep those lower rates for a longer period of time, he said.
“It’s truly one of those things, where the longer you wait, the more it costs,” Turner said.
“Life insurance is priced on an actuarial table, so basically the insurance company is saying the younger you are, the likelihood of you passing away is not as high as if you were older.”
The second reason students with student loans should consider opening a policy is to make sure life insurance remains an option. If a student happens to acquire a terminal illness later in life, a life insurance company will be less likely to insure them.
“If you get a serious illness, you may never be able to buy life insurance again,” Roeser said.
But for students without immense debt, Turner said life insurance may not be the best investment.
“It’s not a bad decision to get it, but if they don’t have any dependents or student loans, then there would be better options for them to put that money that they would be paying premiums (with) aside, and maybe invest in a mutual fund or something of that nature,” he said.
Reach Tommy Giglio at [email protected].
