My stepdaughter Lauren is going to be a senior next year- so guess what we spent this spring doing?
And with all of those college visits came a lot of conversations about how to pay for college. Since right now, the top two schools that seem like the best fit for Lauren are both private colleges, we’re talking some hefty price tags and navigating through the student loan process.
If you’ve followed any of our other blog posts, you may know that coming up through the pipeline- after Lauren- we also have Jack (sophomore), Nathan (freshman), and Hailee (6th grade)- so we are going to be getting quite cozy with good ole’ FAFSA in order to help the kids achieve whatever post-secondary goals they have.
We’ll probably end up co-signing for some kind of private student loan for Lauren at some point. Which means as soon as Lauren turns 18, she’ll be getting a life insurance policy as well.
Most people don’t give much consideration to life insurance on their children. Some people downright refuse to purchase life insurance policies for their children- saying they don’t want to “profit” from their children passing away, etc.
But if you are co-signing on a student loan for your child- and that student loan does not have a death discharge (meaning the loan does not disappear if the child passes away)- then you absolutely need to purchase life insurance for your child.
Can you imagine co-signing on a $50,000 private student loan for your 19-year old daughter and then have her pass away at the age of 25 and have to continue making those payments every single month? I mean- it would be bad enough that you have lost your child. It would be pain unimaginable. But then you are reminded of that pain every month when you have to pull out the wallet and pay on that loan. Not to mention that it could seriously disrupt your finances.
I’m still paying on my own student loans- for a career path I am not even in. Paying on that frustrates me every single month. But at least I know that the college experience was beneficial. At least I know that the piece of paper meant something and put me in good places. At least I met some of my best friends in college. But having to pay both my student loan, my husband’s student loan, AND my daughter’s student loans if she had passed away- all because I didn’t bother to get a $20/month life insurance policy on her?
Nope. Nope. Nope. Nope.
The point of life insurance is to protect your finances from sudden loss of income –or- increased responsibility. The funds you receive from the life insurance policy can help cover the cost of the student as well as burial costs and even therapy for family members, etc.
Term life insurance policies are great for these types of situations because:
- You can choose to have the policy in place for a specific amount of time (for instance the length of the student loan)
- They are generally affordable, especially if the insured is young and healthy
- You can purchase specific amounts to cover what you need (ie student loans and death/burial costs, which typically run around $10,000)
- By getting Life insurance at a young age, you lock in a less expensive rate for the length of the term. You also lock in your ability to get life insurance (the insured may develop a life-threatening disease over the next 20 years and become uninsurable and be really happy they had that original policy that they can add to instead of not being able to purchase a new policy).
Life insurance for young people is generally pretty inexpensive. Depending on lifestyle, age, and other factors, a person can typically get a term life policy for $15-$30 per month or less. You can usually also get a discount if you pay for the entire year at once.
Therefore, as you are discussing your student loan options- check in with your private lenders to see if they have an official death discharge policy. If they don’t have a formal policy in place, getting life insurance is a safe bet. There are a lot of great reasons to get life insurance- but this is a no brainer.
Next, determine how much life insurance you might need. Obviously, your need will change over the next several years, so you may want to estimate times the number of years you will be taking out the loan and then add on funeral costs and other expenses. A trusted advisor can have a discussion with you about what other considerations you may have when deciding how much life insurance to take out and for what length of time.
Lastly, you’ll need to pick the beneficiary. Whomever the co-signer on the loan is should be listed as the beneficiary to the life insurance policy. You can also list a tertiary beneficiary as well.
No one likes to think about Life Insurance. It is not a fun subject and it is difficult thinking about a loved one- especially a child- passing away. But if you have a child going to school and you are a co-signer on a student loan, it just makes sense to purchase the extra protection that a Life Insurance policy provides.
If you would like to talk to someone in our office about a Life Insurance quote, please give us a call- (262) 326-4750. We’ll be happy to help you out.