The most common reason to get life insurance is to help make sure that life expenses can still be covered after the death of a family’s income earner. This usually means insuring life of the mother or father to help cover a mortgage or college and other major costs of the surviving family.
So why would you insure the life of a 22 year old college student?
We’ve been getting inquiries about this topic a lot recently. It turns out there are two good reasons to do this.
First, recent changes in the law mean that federal student loans are excluded from bankruptcy protection. This means that if someone facing financial hardship has to declare bankruptcy, student loans won’t be included under the bankruptcy program and the full amount of the loans will remain due.
How does this affect you? The income details of parents are factored into a college students federal financial aid options until the student is 26, in most cases. Student loans form the bulk of financial aid and many, if not most, parents end up co-signing loans for students.
The average student debt in DC is $41,000.The result is that in the event of the death of the student, the parents will have the additional hardship of having to still re-pay those loans.
If that weren’t enough, the second reason to get insurance is to set them up well going forward. If you get a 30-year policy, when your child is out of school, working and making a good living, she could refinance those loans to eliminate the parents’ obligation then change the beneficiary to her spouse and keep an inexpensive policy into her mid-50s.
Looked at that way, that’s an argument to increase the coverage amount to $200k or $300k, more in line with what a person might need in their 30s and 40s when she has a family of her own.