Buying life insurance for college students

If you’ve co-signed student loans for your kid’s education, you need to protect your family from student loan debt with a term life insurance policy.

Amanda Shih author photoRebecca Shoenthal author photo

By

Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

&Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Updated|3 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

While it makes sense to purchase life insurance as an adult, it rarely makes sense to buy life insurance for children. But if you have a college-aged child and co-signed a private student loan with them, you need to consider buying them a life insurance policy. Otherwise, if your child dies, you’ll be stuck with that debt. A life insurance policy can help make an unimaginably difficult situation better and reduce any financial stress.

Key Takeaways

  • You need your child's consent and participation to take out a policy on them.

  • Most federal student loans, except Parent PLUS loans, are discharged when the borrower dies.

  • Include other debts you share with your child — such as credit cards, car loans, or mortgages — in the coverage amount.

Who should buy life insurance for their college student

Sixty-nine percent of college students from four-year universities graduate with an average of $29,650 in student loans. [1] But just because your child has student loan debt doesn’t mean you automatically need to buy life insurance for them. If you’re not a co-signer, then you don’t need to worry about taking on their debt.

If you did co-sign a loan with them, it’s important to know which kind of loan you signed on to:

  1. Federal student loans These loans are issued and guaranteed by the Department of Education, rarely require co-signers, and are discharged when the borrower dies. One exception: Parent PLUS loans are discharged if either you or your child die, but the canceled debt is treated as taxable income.

  2. Private or nonfederal student loans These loans are issued by banks, credit unions, and other lenders. They aren't guaranteed by the government and aren't automatically discharged if a co-signer dies. If your child dies before the balance is paid off, you're on the hook for the remaining balance. Some lenders even go into automatic default after the death of a co-signer, which means the loan’s balance is due immediately.

Automatic default also applies if you die before a private loan is paid off. Your own life insurance policy should include enough coverage to pay off the loan.

Summary

You need life insurance if you and your child co-signed a private loan or if you’ve taken out a Parent PLUS loan and are worried about a possible tax bill.

Ready to shop for life insurance?

Start calculator

Buying life insurance for your college student

If you co-signed a private loan to fund your college-aged child’s education, you should look into life insurance as soon as the loan papers are signed.

Buying life insurance on someone else — especially your child — can feel odd. But as long as you can prove insurable interest, you’ve got a legitimate reason to take out a life insurance policy on someone else; a co-signed loan falls under that umbrella.

You'll need your child’s permission and participation to take out the policy. One small silver lining: Buying a life insurance policy for your college student gives you an opportunity to demonstrate and talk about good financial planning.

Calculating how much life insurance your college student needs

To figure out how much coverage to buy for your child, calculate:

  • The loan balance plus interest

  • How long it will take to pay off

  • Any other loans you share with your child

While federal loans have set interest rates, private loans have the choice between fixed or variable interest rates, so they can potentially be much higher. For variable-rate private student loans, the interest rate often starts around 3% to 4%, but it can increase to as high as 11%. [2] Fixed-rate private student loans typically have interest rates between 3% and 13%.

For example, if your interest rate for a private student loan is 7.99%, a $13,600 loan with a term length of 10 years will end up costing nearly $19,800 with interest. Account for the full amount when you shop for coverage and ensure the policy lasts as long as the loan will have a balance.

How much does life insurance cost for college students?

The cost of a life insurance policy for your college student depends on several factors, including:

  • Your child’s age

  • Your child’s health

  • Coverage amount

  • Coverage length

Based on policies offered by Policygenius in 2022, a healthy 20-year-old with no family history of disease can get a 20-year, $50,000 term life insurance policy for just $10 to $13 a month. They may even be able to skip the medical exam and get coverage faster.

How to choose a life insurance company for your college student

There are two main kinds of life insurance: whole life and term life. Term life is the right kind of life insurance for most people, and it's the kind of policy you’ll want to buy to cover a debt like student loans.

Term life insurance is significantly cheaper than whole life insurance and only lasts as long as you need coverage, whereas whole life lasts for a lifetime. The best term life insurance company for your student will depend on their health profile and coverage needs.

→ See the life insurance companies our experts recommend

Other reasons to buy life insurance for your college student

Many families support their college-age kids in other ways that could also put them at financial risk. These include:

  • Car loans: Giving the car back is an option if you're left with the remainder of an auto loan, but it will hurt your credit.

  • Credit card debt: Many parents share joint responsibility for their child's first credit card. If your child has put a large balance on a credit card you share, it's worth factoring it into your life insurance decisions.

  • Mortgages: Selling a home or even giving it back to the bank could eliminate mortgage debt if your child passes away. But, like returning a car with an outstanding balance, your credit can take a massive hit.

In any of the scenarios above, it's worth buying a life insurance policy if your savings couldn't comfortably cover the balance of the loans you co-signed with your child.

You won’t find “buying life insurance” on a college dorm checklist or course syllabus, but it should be top of mind if you’ve co-signed private or Parent PLUS loans with your child. A Policygenius agent can help you find a life insurance policy that protects you and your child from a worst-case scenario.

Frequently asked questions

Do you need life insurance in college?

It's good to have life insurance if you co-signed a private loan or Parent PLUS loan with your parents. The payout protects them from your debt if you pass away.

What type of life insurance do college students need?

College students covering private loans should get a simple term life insurance policy that's affordable and only lasts as long as it's needed.

Can life insurance money be used for college?

A life insurance payout can be used for anything, including your child's future or current college expenses.