Should grad students get life insurance before they have an income?

If you’re not making an income while you’re in graduate school, you might not think you need life insurance. However, life insurance is a good idea for many graduate students.

Nupur Gambhir

Nupur Gambhir

Published March 16, 2020

KEY TAKEAWAYS

  • Even if you don’t earn an income, outstanding debts and dependents might necessitate a life insurance policy

  • Student loan repayment could be the responsibility of your loved ones or taken from your estate

  • Coverage amounts offered to graduate students aren’t as high as they would be for someone earning an income, but some coverage is better than none at all

If you’re balancing work with school, you probably already know that you need a life insurance policy to replace your income if you die unexpectedly. But if you’re in graduate school full time and don’t earn a salary, you might not think that you need life insurance.

However, this is far from the truth — pursuing a graduate degree may actually be the reason to get a life insurance policy. If you have a cosigner on your student loans or any dependents, they can end up being responsible for the debt you leave behind.

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Why graduate students should get life insurance

Even if you aren’t earning an income, the financial implications of your death can negatively affect the people in your life. If you have dependents or outstanding debts, you need a life insurance policy in place to safeguard your loved ones against financial hardship if you unexpectedly die.

Outstanding debts — whether that be a student loan, business loan, or a mortgage — can unwittingly become a financial burden for the people you leave behind if you die. Graduate students, in particular, might have student loans to consider.

However, not all loans are created equal and whether you have a cosigner or are the sole borrower dictates what could happen to your debts.

Someone cosigned your loans

If you took out a private student loan to cover the cost of your education and have a cosigner on the loan, a life insurance policy could be vital financial protection for your cosigner.

When someone cosigns your loans, they’ve agreed to take responsibility for repaying it — as well as the hit to their credit — if you’re unable to pay them off yourself. Unlike federal student loans, which usually don’t ask for a cosigner, private student loans are not discharged after your death and the responsibility of the loan would fall on the cosigner to pay off.

Additionally, there might be other loans you’ve brought a cosigner onto that necessitate a life insurance policy, such as a mortgage. Like with private student loans, your mortgage cosigner would end up being responsible for paying down the loan.

You’re the sole borrower on a loan

Even if you are solely responsible for a loan, your debts can be consequential for your loved ones.

If you took out a car loan or a mortgage and there’s an outstanding balance at the time of your death, the car or house then becomes the financial responsibility of family members left behind. If they are unable to make the payments or sell the car or home in question, it can be repossessed — potentially risking the housing, transportation, and financial stability of your dependents. Such outstanding debts are usually sorted out in a probate court, which may decide to sell off your belongings to recoup the loss if they cannot be paid off by your estate or loved ones.

Student loans can be a little trickier. If you took out a private student loan with no cosigner, then the lender would likely collect the debt from your estate, to the detriment of anyone relying on it. However, if your estate has no funds, the debt would probably be cancelled and no one would be liable for it.

If you die before paying off your federal student loans, the loans are discharged and you won’t have to worry about anyone left behind incurring the costs.

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You’re married or have dependents

Even if you’re not making an income, you may still be providing economic support to your spouse or dependents — especially if you’ve taken out loans to cover the cost of your rent, bills, or any other everyday expense.

If you die and can no longer help your partner pay the bills, they’re going to incur that additional cost. Alternatively, if you performed any unpaid labor that would have to be replaced — such as child care, work around the house, or care for elderly parents — your partner would likely need to hire someone or take over the responsibility themselves and possibly take an income hit.

A life insurance policy can ensure that your loved ones aren’t struggling to pay some of the following expenses:

  • Rent or mortgage
  • Monthly bills
  • Everyday expenses
  • Child care or dependent care
  • End of life expenses

You have or plan to have children

If you have children or plan to have children, you’ll want to have adequate protection in place in the event you die prematurely. Raising a child can cost $233,610 over the course of 18 years, or $12,980 annually — and even more if you plan to cover the cost of college.

If you intend to have kids in the future, you may want to plan ahead and get life insurance early on to lock in competitive rates. It’s recommended that you plan ahead for life insurance coverage by five years.

The cost of life insurance increases as you age

Life insurance is cheaper when you’re young and in good health. Because the cost of buying life insurance increases as you age, you might want to lock in low rates now if you plan on getting a policy down the road anyway.

The table below demonstrates how the cost of life insurance premiums increase as you get older.

Average life insurance rates by age for women

AGE$500,000$750,000$1,000,000
20$21.65$29.77$35.03
25$21.76$29.95$35.55
30$23.02$31.88$37.43
35$25.68$35.90$42.63
40$33.80$48.07$52.72
45$47.53$68.60$86.33
50$71.68$104.60$132.64
55$108.88$159.50$209.21
60$192.52$283.21$361.92

Average life insurance rates by age for men

AGE$500,000$750,000$1,000,000
20$28.26$39.76$47.25
25$27.66$38.87$46.15
30$28.73$40.48$48.20
35$30.67$43.30$52.16
40$41.02$58.48$72.69
45$60.88$88.70$113.03
50$94.57$138.68$176.97
55$153.96$225.24$289.64
60$266.74$390.84$504.46

Methodology: Sample monthly premium rates based on a 20-year term life insurance policy for a non-smoker in Preferred health rating; quotes based on policies offered by Policygenius in 2020.

How much coverage should graduate students get?

Your life insurance policy should cover the length and amount of your debts and future costs. If you anticipate that your student loans will take 20 years to pay off, you’ll want a 20-year term length in place. Likewise, if you have $100,000 in student loan debt, you want a policy that will fully cover that amount so that no one is left footing the bill.

How much coverage can graduate students get?

Life insurance is technically an income replacement, and insurers want to see that you actually need life insurance before making a policy offer. This is why insurers review your evidence of insurability when you apply for a life insurance policy.

Your evidence of insurability is the financial justification for your life insurance coverage. It’s based on age and if your income is proportionate to the amount of coverage you’re asking for. If you don’t earn any income, then life insurance underwriters have to use their discretion when determining how much coverage they can offer you.

Coverage based on your projected income

Without an income, the type of coverage you receive may vary across each life insurance company and individual circumstance, but there are a few different ways that your policy options can play out.

For starters, life insurance companies might offer you some coverage now with the opportunity to increase your coverage amount once you’re employed. A medical student who has a projected income of $100,000 would probably need a $1 million policy — 10 times their income — but might only be offered $250,000 in coverage while they are still in school with the chance to apply for more coverage once they’re working.

But life insurance companies can be understanding when it comes to future income and are willing to make exceptions for specific circumstances. It’s entirely possible you could get an offer based on your future projected income before you’re employed — especially because insurers are more lenient with younger applicants than they are with older ones. Each underwriting decision is done on a case-by-case basis.

Insurers might ask for information about your expected employment date, expected starting job, and expected starting salary to determine how much coverage they will offer you.

Coverage based on your parents’ policy

Lie insurance companies might use your parent’s policy to determine your coverage. Though there would still likely be a lower than usual cap on the amount of coverage you could get, financial justifications regarding a parent’s household income, net worth, and their own life insurance policy could provide the financial justification a life insurance company needs to grant you coverage.

Coverage for non-working spouses

Finally, if you’re in graduate school and you’re married, non-working spouses are able to get some life insurance coverage in proportion to that of their partner’s policy. Again, the type of coverage you receive varies depending on individual circumstance, but here’s how the top life insurance companies treat coverage for non-working spouses:

LIFE INSURANCE COMPANYNON-WORKING SPOUSE POLICY
AIGMatches up to $1.5 million of working spouse's coverage. Coverage limited to 10x working spouse's income if household income is less than $25k.
Banner LifeMatches working spouse's coverage. If household income is below $20k, no coverage will be offered.
Lincoln FinancialMatches 100% of working spouse's coverage. Maximum coverage is determined on a case-by-case basis.
Mutual of OmahaMatches 100% of working spouse's coverage up to a maximum of $2 million
Pacific LifeMatches 100% of working spouse's coverage up to a maximum of $3 million ages 70 and below. Matches coverage on a case-by-case basis ages 71 and above.
PrincipalN/A
ProtectiveN/A
PrudentialMatches 100% of working spouse's coverage. Maximum coverage is determined on a case-by-case basis.
SBLIMatches up to $2 million of working spouse's coverage
TransamericaMatches up to 50% of working spouse's coverage up to a maximum of $2.5 million