Do You Need College Tuition Insurance?

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Kathryn Flynn

By Kathryn Flynn

October 26, 2020

Students attending a four-year public, in-state university paid more than $22,000 for tuition, fees and room and board for the 2020-21 school year, according to the College Board. Those who went to a private college paid more than double that amount. That’s a big investment, but for most students, it’s paid back in the form of a lucrative career after graduation.

Unfortunately, not all students who enroll will graduate with a degree – sometimes for reasons beyond their control. And in many cases, they end up losing all or a large portion of the tuition and other costs they’ve already paid. Parents who want to protect their investment have the option of purchasing tuition insurance that could help them recoup some of the costs if their child was to withdraw from school.

What Is Tuition Insurance?

Just like any other type of insurance, tuition insurance is intended to give families peace of mind when paying for college. If a student were to fall ill, become seriously injured, develop a mental health condition or just decides to drop out for other reasons, there are tuition insurance plans that can help soften the blow of the financial loss. With tuition insurance, a student who has to take a temporary break from college can now afford to come back and complete their degree program at a later time.

What Does Tuition Insurance Cover?

The type of coverage depends on the plan you select, and each option has a different price tag attached. Most policies require a documented condition or event to qualify for a refund, but there are options that cover students who withdraw for any reason. Example of the various types of coverage offered include financial assistance to students and parents in emergency situations, as well as withdrawals as a result of:

  • Illness – both new and pre-existing
  • Injury
  • Psychological conditions
  • Death of the student
  • Death of a parent, grandparent or other person who
    is paying the tuition
  • Family emergency
  • Academic struggles

Do You Need Tuition Insurance?

As many families struggle just to afford college alone, some might question whether adding on the additional cost of tuition insurance is really worth it – especially if their child is healthy. The answer will depend on each family’s situation, risk tolerance and the type of policy they choose. If the student has a preexisting condition that could impact his or her ability to complete a term, it might make sense. And families who send their child to an expensive private school may sleep better at night knowing their investment is protected.

According to a 2016 survey from Allianz Global Assistance, 72 percent of financial advisors would recommend tuition insurance for clients with children entering their first year of college, and 78 percent recommend it for any student who plans on taking out student loans. Federal student loans will be discharged in cases of death or permanent disability, but private loans generally will not. Tuition insurance can protect a student from having to pay for a non-existent degree with interest.

However, it’s important to understand the school’s own refund policy before selecting a coverage plan. Most schools will refund a portion of tuition costs up to a certain point in the semester, so a tuition insurance policy should be able to cover the difference of what the school pays and out-of-pocket costs.

For a private student loan, families may also want to get a term life insurance policy on the student, with a face value equal to the amount borrowed and a term equal to the repayment term of the loan.

How to Get Tuition Insurance

The top providers of tuition insurance include Allianz Global Assistance, A.W.G. Dewar, Education Insurance Plans and Grad Guard. Plans offered through Allianz, who partnered with GradGuard, are available to all U.S. residents attending an accredited higher education institution. They offer three plans, ranging from affordable baseline protection to coverage of up to $50,000 if the child were to drop out of school for any reason. A.W.G. offers a more limited selection, with customized policies for 1,300 leading independent schools across the country.

[Originally published on December 15, 2016. Updated on October 26, 2020.]

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