Monthly premiums for term life insurance for a 30 year policy for a healthy college age student are very inexpensive. In addition to protecting parents who may be cosigners on student loans or who make significant investments in their child’s education at expensive private colleges, it is also an investment in their child’s future for when the child gets married and starts a family.
Although many employers also offer term life insurance on their employees as long as they are working, it it is prudent to also have your own life insurance policy in case you lose your job or stop working.
People are irrational on the subject of insurance. I have a friend who is forever making claims on her homeowners for a lost camera, minor home damage due to this and that, etc. and doesn’t have life insurance. I tell her that to spend money insuring herself against a $1500 loss, but not insuring her kids for the loss of her income for 10 years if she got hit by a bus tomorrow makes zero economic sense. And she agrees- but not enough to buy life insurance. People will buy an extended warranty on a tv which will be obsolete in four years (new and better, bigger, thinner, whatever) but don’t have disability insurance (which could ruin their family if god forbid- they needed it).
Maybe the insurance industry just needs more user friendly nomenclature. Disability is “Lifestyle Maintenance”; life insurance is “Family Protection”; long term care is- well, LTC stinks no matter what you call it!
“I don’t think you can buy disability insurance on someone else. Usually it is tied to a job/salary. If not, it’s a smaller amount ($2000-4000 per month) for a short time. It would be paid to the owner of the policy (the worker/child) and of course he’d have no obligation to give this money to the parents. Most disabled people need the money for their expenses”
Very true on the no obligation to pay but there really is no obligation to pay back the loans he is taking from his parents other than verbal. Unless they have a contract.
You definitely can buy disability insurance as a student with the goal of repaying loans. I just sent the paper work in for a lump sum $200,000 disability payment if I should become disable prior to finishing my MD with the goal to use that money to pay off any student loans I may or may not have to take. Now, do I have to use that money to pay the loans off? Not in my case but at least one loan institution I talked to wanted to be named the beneficiary for the amount of the loan. I am not using them, they seem a little shady. Good stuff.
@Mom2aphysicsgeek I’m so sorry for your loss and can’t imagine how it must feel. A friend of my daughter died when she was in 11th grade and the parents were so devastated. Thanks for the benefit of your experience.
I looked up insurance quotes and $100,000 worth of coverage for 20 years is less than $10 a month for people 21-30 years old; $200,000 is just $150 or so a year: https://www.quotacy.com/quotes.php#basic
“… New York University, one of the most expensive institutions in the country, called several thousand prospective students who were accepted after they got their financial-aid offers. They focused on students who had a big gap between what NYU offered in aid and what the family was expected to pay. NYU essentially wanted to encourage the students to look elsewhere, because while the university might be a good academic fit, it wasn’t a good financial fit.
“The calls had almost no impact on a student’s decision to enroll, and after a few years, NYU ended the outreach. Most parents didn’t want to disappoint their children. Instead of telling them to go to a less-expensive school, they encouraged their sons or daughters to take out bigger loans, or the parents took out loans themselves to help subsidize the degree.
This is an emotional topic for me. I was a first generation college student. My parents scrimped and saved to pay my college tuition and room and board. I worked summers to pay for books and fun. I took out one small loan as a senior because it was very likely I would find a good paying job as an engineer. Within a month of my college graduation I was involved in a near death situation. Thankfully, I survived and had a fantastic job offer.
Paying off your loans and funeral expenses is one aspect. For parents living below their means and not seeing their child achieve a better life is a different side.
YOU can buy it, but another person may not be able to buy it on YOU. For life insurance, you have to have an insurable interest in the person. I can’t go and buy insurance on you (I don’t know you) or on Brad Pitt, or on my neighbor because I don’t have an interest in whether those people live or die. It would be like buying lottery tickets, that I’ll get paid if Brad takes a header, and if he lives, oh well, I’m no worse off. Parents can buy life insurance on their children because there is an argument that the parents will suffer a financial loss from the child not providing income in the future. Disability insurance? That’s trickier. How disabled are you? Can you parents keep you from getting another job and voiding their claim? I’ve never heard of buying disability insurance on another person.
Every insurer develops their own underwriting standards-- and disability and long term care are much trickier forms of coverage than they used to be. I would be curious to know who is still writing lump sum disability insurance which pays out 200K all at once- most policies have long waiting periods, have very strict rules on partial/full coverage (i.e. if you can answer the phone at home for a virtual call center then you are not disabled even if you can’t drive to a physical workspace) etc.
200K is a lot of coverage for an 18 year old for disability. I’m curious how much that costs.
@2017girl just graduated from college, so a little older than 18. However, I’d look very carefully at the definition of ‘disabled.’ As Blossom says, there is a difference between not being able to be a surgeon because you can’t stand at a table for 3 hours and not being able to be a ‘doctor’ of any kind. Psychiatrist? pediatrician? pathologist?
Proving you are totally disabled is a tough test to meet.
Disability insurance (better called income protection or salary insurance) can be complicated, and thus generally can’t be purchased on your own, so discuss with a qualified agent. Like life insurance, by law, you’ll pay the exact same rate with or without an agent. I can direct you to one if needed.
I understand the rationale, but the bigger risk is the one that’s uninsurable. What’s the probability the kid winds up un/underemployed and can’t pay back the loans? Or the kid simply decides to stop paying his parents back?
a. Kid is a pre-med but gets “weeded out” like most pre-meds (does not get into any medical school), graduates with a biology degree, and gets a relatively low paying job.
b. Kid is a pre-med who successfully gets into medical school. But, after medical school and residency, he is drowning in debt and can barely service it on his physician’s pay, with none left over to help the parents.
c. Kid attends a high-prestige school and successfully enters Wall Street or consulting employment. But then he burns out and leaves that job and its high paychecks for something less stressful.
d. Kid majors in CS, but then an industry crash occurs right when he graduates, so he starts his career unemployed. By the time the industry recovers, employers will favor new graduates over someone who has not had a job for some years since graduation.