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Should You Have Life Insurance to Cover Student Loans?
When planning for your future — or your child’s — it is easy to think of all the wonderful things: going to college, getting a fine education and starting down the path to an excellent life. But there are some not-so-rosy sides to thinking about the future, such as considering the need for life insurance for college students.
At a time when many young adults are entering school without a family or financial obligations, it may seem strange to consider a large life insurance policy. But what many parents and children do not think about is the situation where death could occur and large student loan bills could loom.
Why consider life insurance for students?
In most cases, students heading off to college do not have a mortgage, a family to support or other financial obligations. In these cases, purchasing a large life insurance plan may seem strange.
But as the cost of college increases, along with the amount of student debt accrued after four years of education, the reality is that losing a child or family member who has not repaid their student loans could leave you with a financial nightmare.
This is especially true for family members who co-sign for students so that loans can fund their education; co-signers are often held responsible for remaining debt in cases where the primary borrower has stopped making payments, even in situations of death or disability.
In fact, with the cost of college being what it is today, many of our young students who are incurring this debt will most likely be paying for it for years and years to come.
Which means that these “students” will be paying on their “student debt” long after they’ve completed classes! (Some may even become Grandparents before it’s paid!)
Using Life Insurance to cover Student Loan Debt
Now you may be asking…Why do I need life insurance since my student loans are forgiven upon death? Guess what, student loan forgiveness is not as clear cut as you think!
Did you know:
• If you file bankruptcy your federal student loans will NOT be discharged?
• If you die your federal student loan is forgiven but your estate still must report the discharged portion as INCOME to the IRS, subject to federal income tax?
• If you qualify for loan forgiveness under either the Income Based Repayment (IBR) or Pay as You Earn (PAYE) programs the forgiven student loan is treated as your TAXABLE INCOME for that year?
What about college graduates?
The difficult truth of student loans is that they usually do not disappear quickly after graduation.
For this reason, many people pay back educational loans into adulthood, even as they get married and raise families.
Life insurance policies with enough room for student loan debt can help protect your family from financial burdens in the event that you die before the loans are repaid.
How large of a policy should I get?
It is difficult to say for sure how large of a life insurance policy you should take out, especially when it comes to incorporating the potential of paying back student loan debt.
But, there are factors that can help you determine the amount to insure yourself or a child in college for:
• How much income does my spouse or child need to survive without me?
• What personal and family obligations do I have?
• What persona, family or business debts do I have?
• What living expenses will my family face without me?
• What is my income, and how will my family get by without it?
• How much student loan debt do I have, and how much am I anticipating paying in interest?
Federal Loans vs Private Loans
Federal loans include:
• Subsidized loans
• Unsubsidized loans
• PLUS loans
• Perkins loans
One big benefit of federal loans it they are usually forgiven if the student dies. The exception is with PLUS loans.
The parents are still on the hook in this situation. However, if the parents also die, then the loans are forgiven.
They are almost never forgiven if the student dies (although each lender has the option to forgive them).
Parents will be on the hook to pay them off if their child passes away unexpectedly.
That’s why students with a large amount of private loans should strongly consider life insurance coverage. This is especially true of students whose parents co-signed their private loans
Why You Should Get Life Insurance at a Younger Age
Life insurance premiums are based on age and health. Premiums are lowest when you are young and healthy.
Since there is a good chance you will have a family depending on you to protect them financially one day – now is a great time to lock in the lowest rates on your life insurance.
Life insurance becomes increasingly more expensive as you age. And, as you age you become more prone to a variety of health issues such obesity, high blood pressure, heart disease and diabetes just to name a few.
Life Insurance for Students and Parents with College Loans
Finding an affordable life insurance for students and their parents is a lot easier and less expensive when you go through an independent agent such as you find here at GoldCoast Life insurance