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Do College Students Need Life Insurance?

March 20, 2015
Insurance, Life Insurance
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College students likely wouldn’t see themselves as someone who needs life insurance. Making it to class, passing the next test and this Friday’s kegger are probably way more important than planning for an untimely death. But in a few situations, life insurance could be a smart buy.

One reason is student debt. The average student loan debt is approaching $30,000, according to The Institute for College Access & Success. More and more college students are turning to private loans for tuition money — and co-signing with their parents.

Shouldering that mountain of debt could put parents in a tremendous bind should their college-student child die. Life insurance can provide a cheap, easy way to pay off those loans and keep your parents’ finances above water.

How student loans work

With federal student loans, any debt you owe is absolved upon your death, according to the U.S. Department of Education. Your loan is canceled, and your parents (or spouse) are free of repayment liability.

That’s not the case with private student loans. If there’s no co-signer, the lender will use money from the student’s estate to pay off the balance. However, if there’s not much money there (because you were a poor college student), the loan will likely be discharged.

If there is a co-signer, he or she is responsible for paying off those loans if you die.

Life insurance to cover loans

Before taking out a life insurance policy, check with your lender. Some private loan companies — such as lending giants Sally Mae and Wells Fargo — will provide relief if the primary borrower dies. If that’s the case, life insurance is unnecessary.

If your lender doesn’t offer any protections, consider getting term life insurance quotes. Term life insurance allows you to choose the length of coverage and the amount. The amount should be equal to the loan balance — $50,000 in coverage for $50,000 or less in loan debt, for instance — and the term should be equal to the date the loan will be paid in full.

[Life insurance quotes are available through NerdWallet’s Life Insurance Comparison Tool.]

Young marriage and new parents

Besides loan debt, getting married or having a child while in college are other reasons to buy life insurance.

A 2011 report from the National Center for Education Statistics found that about 18% of college undergraduates are married.

And more than a quarter of all undergraduate students are raising children while going to class, according to the Institute for Women’s Policy Research.

Although you may assume you can’t afford life insurance because you’re young and starting out, youth is the ideal time to make a life insurance purchase. Premiums go up with every birthday, and medical problems add to rates. Buying life insurance when you’re young allows you to lock in a good rate.

At the same time, weigh your financial situation and your dependents’ needs with your chance of dying. According to the Social Security Administration, a 20-year-old’s chance of dying in the next year is a very small 0.1%.

Buying life insurance as a college student can be a sound financial move depending on your circumstances.


Image via iStock.