College classes are getting ready to resume and with that comes serious financial planning. Many families look into scholarships, grants, low-interest rate loans, and even personal loans. What many don’t consider is how a life insurance policy can protect you and your family’s financial situation if the need should arise.
At Bosworth & Associates Insurance in Tyler, Texas, we realize that having a conversation about life insurance can be difficult- especially when discussing the death of a young person. However, we’ve seen time and time again how it is better to be prepared and be protected.
With the school year about to begin and whether your college classes will meet in person, online, or a combination of both, there will tuition due. In many instances, the cost of tuition will be paid upfront from student loans.
When families sit down together and discuss student loans, part of that conversation should involve talking about life insurance. Most degrees take 4-5 years. If a student decides to continue their degree and get an MA, Ph.D., or Doctorate, that can mean many more years of student loan debt.
What happens if the unforeseen should occur, and something happens to the student? In that instance, the co-signer could then be liable for the amount of the debt. Suddenly being forced to pay back thousands of dollars in student loans could be financially devastating to a family.
Luckily, there are life insurance policies available to keep you and your loved ones protected.
Let’s break it down further, look into some of the terms and details, and what you need to know about student loans and life insurance to prepare and protect your family, as a significant amount of students have tens of thousands of dollars in student loan debt.
It’s important to understand the difference between federal loans and private loans.
Private loans may not be discharged if the person who took out the loan passes away. If these loans involve a co-signer—usually a parent—the co-signer is responsible for the unpaid debt. Federal loans often work differently, and it’s possible the debt might be discharged. It’s essential to read the fine print and ask specific questions of your loan officer.
Many student loans, especially private loans, require a co-signer—someone else to sign for and take responsibility for the loan debt. This is necessary because the student is generally young and has little or no financial or credit history. Most loan companies won’t just hand over thousands of dollars to a young person, for obvious reasons, which is why a co-signer is necessary.
Co-signers are generally parents or other close family members. When someone co-signs on a loan, they take on an equal amount of the financial responsibility to make sure it gets paid off.
As a parent, if you’re a co-signer, make sure you read the fine print. Take time to fully understand the risks you’re taking on. A co-signer is responsible for the debt of the loan if it isn’t paid off.
The death of a student is enough of an emotional hardship to bear. You shouldn’t have to add significant financial strain on top of everything else.
As a student, taking out a life insurance policy helps ensure that your parents won’t suddenly be strapped with a huge debt if something happens to you. It’s an easy and generally inexpensive way to make sure everyone is taken care of.
Here’s the good news in all this: Especially because most people borrowing for student loans are young, they might be eligible for an inexpensive life insurance policy.
To help clarify, here’s a little breakdown:
Life insurance is a financial payout made from an insurance company to a beneficiary in the unfortunate circumstance that the student passes away. When you buy insurance, you pay a monthly premium (or payment) to an insurance company based upon the terms agreed upon by you and your insurance agent.
Policies vary significantly, and it’s important to do thorough research to find out which policy is best for you both in the financial short and long term.
An added benefit is that it’s good to get life insurance at a young age anyway. Especially if you’re able to find an affordable policy with a fixed monthly rate, it could be a significant benefit in the long term, as well as affording you and your loved ones financial security in the short term.
For example, a policy you might want to look into is called Term Life Insurance. A term life insurance policy is set for a fixed period of time, usually 20-30 years. Term life insurance might be perfect for covering the time period during college and after when the student is working and able to pay off the loan.
While life insurance is never an easy topic to discuss, when it comes to taking out student loans, it’s an important conversation to have. Students and parents need to understand the financial ins and outs of taking out substantial loans, and who will be responsible for paying the loans in the unfortunate instance of an untimely death.
Life insurance is about taking care of each other. Now, and in the future. At Bosworth & Associates Insurance in Tyler, we are here to help you navigate your options, help you plan for the future, and help protect your finances.