When Do I Need Tuition Insurance?

By Madison White on March 23, 2019

With the term “insurance” comes the word “investment.” People generally buy or need insurance for things that are large investments, like cars and houses, or very important, like their health. Haven’t heard of tuition insurance before? You’re not alone. Tuition insurance isn’t common and certainly isn’t needed by everyone, but it can be extremely helpful for a select group of people. So who is tuition insurance for and when can you use it?

The Basics

Firstly, there are a few general things to know about tuition insurance. People who invest in this type of insurance generally fall into one or both of the following categories: serious illness and expensive tuition. If you don’t think that you classify into either of these groups, it is unlikely that you would benefit from tuition insurance. To learn more about the basics of tuition insurance, read this article.

The most common reason to get insurance is if the student, or a parent that is paying for the tuition, is chronically ill. This term includes both physical and mental ailments, but not all insurance companies will consider people with mental illness as chronically ill. There can also be confusion around people’s symptoms of illness at the time the insurance is issued which can lead to potential problems down the line. Many people with these types of illnesses need insurance in case of medical issues appearing during the semester. Instead of losing all of their money should something happen suddenly, tuition insurance allows them to receive some, or all, of that money back.

Another reason for getting tuition insurance is expensive tuition. It’s no secret that college prices are rising in both public and private universities. This means that some families pay a lot of money out of pocket to fund their child’s education. If this is a particularly large number, and especially if there is a high risk of their student dropping out, many families choose tuition insurance so that their money won’t be entirely lost. While some tuition insurance provides work with students with certain loans, these plans can vary based on a number of factors. If a student with loans is interested in insurance, that student should consult with a financial adviser directly.

The most common tuition insurance providers are Dewar, Allianz Global Assistance/GradGuard, though others do exist. Looking at these companies’ websites in particular may help you gain some knowledge about tuition insurance overall. If some of these factors may apply to you, but you’re still on the fence about needing tuition insurance, check out this article about whether or not it’s worth the money.

Just like most types of insurance, you can buy full or partial coverage based on your needs. Your insurance plan will depend on how much your payment plan is, how much you’re covering, and what your situation is.

Let’s examine a few hypothetical situations and how the results would differ based on having or not having tuition insurance.

Situation 1: The student is chronically ill and has a flare-up in the middle of the semester. They are bedridden for the latter half of the class and end up failing.

Without insurance

The student will likely have to file an appeal with the university to erase the failed classes from their record. Even if the student manages to get their record cleared, the university will likely not refund the tuition from that semester. If the student managed to drop the class by the “Withdraw” date that most universities have, they may have received some money back and get to forego the grade appeal process. If they missed this date, however, they will likely receive nothing back.

Considering the high cost of health care in America, this student would also likely have many expenses in medical bills and health insurance. Losing all of that needed money to tuition could be a huge blow to their financial situation. It could definitely prevent that student from ever going back to school even if their condition improves.

With insurance

Depending on your coverage plan, you would be reimbursed at least partially for the tuition lost by failing the semester. For some students at expensive universities, this could be the difference between losing $500 (to pay for the insurance) and losing $5,000. The money that you are reimbursed could go towards returning to school when you are in better health, or paying for existing medical bills and coverage. Keep in mind, however, that some insurance plans are very specific about what medical issues caused you to drop out of school. Make sure that you know all the details of your insurance plan and check your school’s refund policy beforehand.

Situation 2: The student’s tuition is being paid for by a parent. This parent dies during the semester and the student is left with little funding to pay for their education.

Without insurance

Though the death of a parent may not be extremely common for college-age students, it is definitely something that can happen. Unfortunately, many students suffer both emotionally and financially because of this traumatic event. People are buying life insurance in smaller numbers than they used to which could leave students with little after paying for funeral costs and other expenses.

This student would be responsible for paying for their own tuition from this point on despite having lost their financial provider. Even if this student was working a part-time or possibly full-time job, it is unlikely that they would be able to make enough to cover all the tuition fees, student expenses, and living expenses. Because they may not have savings of their own, this could cause them to drop out of school. If they are lucky, they may be able to take out some student loans if the deadline hasn’t passed yet. However, student loans must be paid back and accrue interest, so the student may just be putting off inevitable financial difficulty.

With insurance

Tuition insurance providers often work with universities and life insurance providers to set up plans that would cover the death of a parent. These plans definitely vary, but ultimately provide essential support and funding that could prevent a student from dropping out of college.

Situation 3: The parents of a student are paying $20,000 in tuition per semester. This student decides halfway through the semester that college isn’t for them and drops out.

Without insurance

For some students, they need to try out college to determine whether or not this is the right path for them. While some opt for a cheaper community college, other students want to go the private school route. This choice could be influenced by their location, parent’s alma mater, and their academic record. However, this route can come at a price.

These parents will likely have already paid the $20,000 tuition fees by the midpoint of the semester. When their child drops out, that is a lot of money gone completely with little to show for it. Unfortunately, they will not get that money back.

With insurance

For parents of students who aren’t entirely dedicated to college, tuition insurance can be a huge benefit. They may want their student to at least try out college even if they aren’t completely sure. However, paying that much money just to “try something out” is a huge financial risk. Families that have the financial means are much better off paying an extra $200-$500 a semester than risking paying tuition money that won’t result in a degree.

Parents who have some insurance coverage would likely end up getting most of those tuition fees back from the insurance company in this situation. The money could then be used to help their child until they find a job or set them up in an apartment.

Situation 4: A student successfully completes college without any medical or family issues.

Without insurance

Most of us are familiar with this situation. Depending on how they’ve funded their college education, they may have little debt or a lot of debt. Yet, they have a degree that will help them move into the job market and hopefully secure a fulfilling position.

With insurance

Because this student completed their degree, they did not end up using the insurance and won’t receive any money back. While the peace of mind in having their tuition insured may have been nice, it did come at a cost. If this student paid $250 in insurance per semester, this would amount to $2,000 over the course of a 4-year degree. This isn’t an extortionate amount, but that money could’ve potentially have been used for renting an apartment or making a down payment on a car. For some, it could be treating themselves to a vacation after they graduate.

Infographic by Madison White

What if I’m an adult student?

Returning adult students usually have different priorities and situations than typical college students. For some returning adult students, tuition insurance may be especially beneficial.  If you do have chronic or serious illness, then tuition insurance would still be worth considering, just as it would be for a younger student.

If you are attending a very expensive college and paying for most of the tuition out of your own savings, tuition insurance could be valuable to you. If you have reasonable doubt that your life situation may get in the way of your education, then seeking out tuition insurance may be a smart decision so that you aren’t losing all of your funds. Insurance provides that peace of mind that many adults need.

Minimizing Financial Risk

Tuition insurance may be a great option for you and your family, but like any big investment, make sure that you do your research beforehand. You should always be aware of the fine print and just because the company says has a 100% guarantee, you may not end up getting all your money back. It is essential that you know all the ins and outs of your tuition insurance plan otherwise you may be spending money that won’t actually help you in the long run. Just because a company advertises something doesn’t mean that you will qualify for or receive that specific deal.

Be sure to consult multiple websites and professional advisers before signing up for an insurance plan. The person that will be responsible for paying the insurance, either upfront or through a payment plan should be absolutely sure that it falls within their budget.

Do I need it?

If you meet one or any of the criteria for tuition insurance, it is definitely worth doing some research on how it could benefit you. It could end up saving you a lot of money in the long run in case something happens. If you, or your parents, have a history of medical issues or chronic illness, tuition insurance may be just what you need to realize your educational dreams without having to risk everything.

If you do not meet any of this criteria, it is unlikely that you need tuition insurance.

Overall, tuition insurance can be extremely beneficial to people in certain situations. These can include people with severe or chronic illness, students whose parents who are paying their tuition and are at risk of dying, and parents who are covering a majority of the tuition at an expensive school. For these select situations, having insurance could be the difference between having enough money to finish a degree or not. It could be the difference between losing thousands of dollars.

Tuition insurance, like any insurance, requires careful research and families who are considering it should be diligent in their search for a good provider. They should be conscious of the details of the insurance plan and what exactly they will be getting out of it should they need to use it.

For others, tuition insurance will be another recurring payment that could potentially be used for other, necessary things like books, rent, or food. Investing in insurance means that you won’t see any of that money unless you need to use the insurance. 

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