Why Life Insurance on Your College Student Makes Sense
When your child heads off to college, life insurance probably isn’t at the top of your list. Tuition, housing, textbooks, meals, and student loans seem like much more immediate concerns.
However, purchasing a life insurance policy while your child is young and healthy can be one of the smartest long-term financial decisions you make for them.
A properly structured life insurance policy can help address student loan debt, future insurability, and the cost of insurance later in life. Most importantly, it allows your child to lock in coverage while they are young, when life insurance is generally much less expensive.
1. Student Loans Don’t Always Disappear When a Student Dies
One of the biggest reasons to consider life insurance on a college student is student loan debt.
Federal student loans are generally discharged when the borrower dies. However, private student loans can be different. Depending on the loan agreement and whether a parent or another person is a co-signer, the debt may continue to create financial consequences for the family.
Even when a particular loan would be discharged, there can still be other financial obligations.
A young adult may have a car loan, credit card balances, private debt, or other obligations. Funeral and final expenses can also place an unexpected financial burden on parents.
A life insurance policy can provide money to help address these expenses and protect the family from having to come up with cash during an already difficult time.
2. You’re Buying Insurability While Your Child Is Young and Healthy
Perhaps the most important reason to consider life insurance for a college student isn’t what happens today. It’s what could happen 10, 20, or 30 years from now.
When someone is young and healthy, qualifying for life insurance is generally easier and less expensive.
But nobody knows what the future holds.
A future diagnosis, serious illness, accident, or other health condition could make obtaining life insurance more difficult or more expensive. In some cases, a person may become difficult or even impossible to insure.
Buying a policy while your child is healthy establishes coverage now.
Depending on the policy, there may also be opportunities to purchase additional coverage later without having to prove insurability again.
That can be extremely valuable.
3. Lock In Low Life Insurance Rates
Age is one of the biggest factors affecting the cost of life insurance.
A healthy 20-year-old can generally purchase coverage at a much lower cost than the same person could at 30, 40, or 50.
For example, a young adult might purchase a modest permanent life insurance policy while they are in college and maintain it for decades.
Instead of waiting until they have a spouse, children, a mortgage, and a business or career to protect, they already have a foundation of life insurance in place.
The earlier you establish coverage, the more opportunity you have to take advantage of favorable age and health ratings.
4. Your College Student Will Eventually Have More to Protect
Today, your college student may have very few financial responsibilities.
Twenty years from now, that could be completely different.
They may have:
- A spouse
- Children
- A mortgage
- Business interests
- A substantial income
- Personal debt
- College expenses of their own children
- Retirement savings
- An estate they want to pass to the next generation
The amount of life insurance someone needs often increases as their financial responsibilities increase.
Starting with a policy when they are young can provide a foundation that can potentially be expanded as their life changes.
5. Permanent Life Insurance Can Build Cash Value
Another option worth discussing is permanent life insurance.
Unlike term insurance, certain permanent life insurance policies are designed to provide coverage for life as long as the policy requirements are met. Depending on the type of policy, cash value may also accumulate over time.
That cash value can potentially become another financial resource for the policyowner.
It is important to understand that life insurance should first and foremost be evaluated based on the need for life insurance protection. Cash value should not be the sole reason for purchasing a policy.
However, for some families, establishing permanent life insurance at a young age can provide both long-term protection and an additional financial asset.
6. Parents Can Help Their Children Establish a Financial Foundation
There is also something powerful about establishing life insurance early in adulthood.
Parents spend years helping their children establish themselves financially. They help with education, cars, housing, and countless other expenses.
A life insurance policy can be another way to give a child a financial head start.
Rather than waiting until your child is established in their career and has significant financial obligations, you can help them establish coverage while they are young.
Eventually, the policy can become their responsibility.
The important thing is that the coverage was established when obtaining it was relatively inexpensive and insurability was favorable.
7. Don’t Wait Until They “Need” It
One of the biggest misconceptions about life insurance is that you should wait until you have dependents to purchase it.
There is some logic to that. A 20-year-old with no spouse or children may not need the same amount of coverage as a 40-year-old parent.
But waiting until someone has a significant need for life insurance can mean waiting until they are older, potentially less healthy, and paying substantially more for coverage.
That’s why purchasing a modest amount of coverage early can make sense.
You aren’t necessarily trying to solve every future insurance need today.
You’re creating a foundation that can be built upon later.
What Kind of Policy Should You Consider?
There isn’t one answer for every college student.
A term life insurance policy may provide substantial coverage at a relatively low initial cost. A permanent policy, such as whole life or another form of permanent life insurance, may provide lifetime protection and potential cash value accumulation.
The right choice depends on the student’s health, age, financial circumstances, anticipated future needs, and the family’s objectives.
The important thing is to look beyond the immediate question of whether a college student “needs” life insurance.
Instead, consider the bigger question:
What would it cost to wait?
Waiting could mean higher premiums, reduced insurability, or discovering that a future health condition makes obtaining the desired coverage much more difficult.
The Bottom Line
Your college student may not have a mortgage, children, or a large income yet.
That’s precisely what can make this an interesting time to consider life insurance.
Purchasing coverage while your child is young and healthy can help address potential private student loan obligations, establish a foundation of financial protection, secure insurability, and potentially lock in lower insurance costs for the future.
Life insurance isn’t just about protecting the income someone has today.
It’s about protecting the financial life they are going to build tomorrow.
If you have a college student or young adult in your family, talk with a qualified insurance professional about whether establishing life insurance now makes sense and what type of policy would be appropriate for their long-term goals.
This article is for general educational purposes and is not tax, legal, or financial advice. Student loan treatment upon death varies by loan type and circumstances. Policy features, underwriting, guarantees, and cash-value performance vary by insurance company and policy. Consult your appropriate professional advisors before making financial decisions.