I was speaking with a colleague of mine the other day and the subject of college loans came up. It occurred to us that with the new stricter lending regime, it is probably more important than ever for a parent to consider getting life insurance on a child of theirs if they are co-signing a college loan.
Most college loans are no longer dischargeable in bankruptcy or upon the death of a child. So if you are co-signing a loan, consider taking out a life insurance policy on your child to pay off the loan in the event something happens to your child. As always, the larger the policy you obtain, the more worthwhile it is setting up a life insurance trust.
8 comments:
I don't know about getting life insurance just because the kid will be taking out a loan for college, but that is news to me that loans aren't dis chargeable.
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Child Life Insurance
life insurance right now is really important in case of emergency..but I don't understand why it is necessary to have life insurance when taking a college loan?
Dear Kylee,
Thanks for your comment. It is important to get life insurance on your child only if you are guaranteeing the loan. Many college loans require a parent to guarantee the loan in case the student dies or doesn't pay it back. Imagine having your child die and then being responsible for a loan you can't pay off? Life insurance for students is a VERY cheap way to hedge against this possibility.
Great post! This blog has helped me out so much, thanks for your hard work here!
Thanks so much for this post! I just started doing some research on this and this has been the most helpful thing I've found yet. Keep up the great work here!
Wow, I had no idea that in the unfortunate case of a student's death their debt does NOT go away... it is a little ridiculous that a bank should expect grieving parents to pay for something they clearly no longer need. What sort of life insurance policy would cover student debt in the case of death? Thanks for the info!
-James
James,
Any life insurance policy on your child will suffice. The parent can be the owner and beneficiary. The good thing about buying life insurance on a child is that it is usually quite inexpensive. You could probably obtain a $250,000 policy on an 18 year old for less than $200/year. (Don't quote me though, I don't sell life insurance.)
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