- College students: consider life insurance
- June 8, 2015
By Emily Miller
If you are young, healthy and do not have any dependents, you may assume that life insurance is not necessary; however, this may not always be the case.
Life insurance can come in handy if you have private student loans and you prematurely pass away before they have been repaid. Unlike a Federal student loan that automatically discharges if the borrower dies before repayment, private student loans may still need to be repaid. Often times the burden is placed on the co-signer or withdrawn from the lender’s estate.
The reason why Federal student loans can be discharged when the borrower passes away is because they carry a “death discharge” element. This means the borrower’s survivors can complete paperwork releasing them and the estate from any responsibility for the debt.
Unfortunately, the same cannot be said about private student loans, as few lenders will do a death discharge. Private student loans are generally treated as any other type of debt that must be repaid in the event of their premature death.
Another difference between the two types of student loans is that a majority of private student loans require a co-signer while Federal loans do not require a co-signer.
While state laws vary on this subject, the co-signer of a private student loan is usually equally responsible for the debt. An important tip before taking out a private student loan is to read the private loan agreement to see what would happen in the event the borrower dies before the loan has been repaid.
One way to protect your co-signer and/or spouse is to purchase a life insurance policy that would cover the cost of your student loan debt. You can purchase a policy that would solely cover the costs of the student loan or increase the amount to cover living expenses.
Young, healthy individuals can easily apply for basic term life insurance with a relatively low premium price.
The best type of policy to cover private student loans is a term life insurance policy as you can get temporary coverage for 10, 20 or 30 years with the possibility of extending the term.
It is recommended to list the co-signer of your student loan debt as the primary beneficiary because then that individual will be paid outright by the insurance company if you prematurely pass away.
The good news is that beneficiaries can change at any time, so if you initially listed your parents and later want to protect your spouse, you can easily change the beneficiary.
The small price of a term life insurance premium may be worth the extra peace of mind for your co-signer or spouse, as the they should not have to deal with your death and repaying your student loan simultaneously.
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