The cost of college continues to rise faster than the standard rate of inflation, making it more expensive every year. Paying for a four-year college education can cost in the six figures. Tuition insurance is one method that can help protect your financial investment in college if a student has to withdraw due to a covered reason.
What's in this guide?
- What is tuition insurance and how does it work?
- How much does tuition insurance cost?
- How do I get tuition insurance?
- Is tuition insurance worth it?
- What does tuition insurance cover?
- What's not covered?
- Pros and cons of tuition insurance
- Alternatives to tuition insurance
- Compare life insurance as an alternative to tuition insurance
- Bottom line
What is tuition insurance and how does it work?
Tuition insurance is a type of refund insurance, similar to travel insurance. It’s designed to reimburse parents for the full amount paid to a college for one or two semesters if their son or daughter has to pull out of school for a covered reason.
Tuition insurance must be bought prior to the start of a new semester to receive a refund. If you buy it and your child has to withdraw from school for the rest of the semester or the rest of the academic year for a covered medical reason, you’ll get back the full amount of money that you paid to the college, including tuition, fees, room and board.
Tuition insurance takes the uncertainty out of your college’s refund policy. Many colleges offer a refund policy if your student withdraws from college, but only if the withdrawal happens before a specified time early in the semester. But if your student has to pull out in the middle or the end of the semester, tuition insurance covers any payments you’ve made to the college.
How much does tuition insurance cost?
On average, tuition insurance is roughly 1% of the cost of your child’s college tuition. In 2020, public in-state universities cost $10,440 per year, while the average private tuition was $36,880. Room and board is typically an extra $12,000 per year, plus books, supplies, transportation and other fees and expenses.
This can make the total cost of college between $20,000 and $25,000 per academic year for public in-state universities and close to $50,000 per year for private universities. At 1%, this makes the cost of tuition insurance between $200 and $250 a year for public in-state universities and close to $500 a year for private universities.
How do I get tuition insurance?
There are only a few insurers that offer tuition insurance at the time of this writing. Each handles withdrawing for reasons such as pregnancy, drug or substance abuse, and COVID-19 differently. Some companies who offer tuition insurance include:
- Liberty Mutual
- AWG Dewar
Is tuition insurance worth it?
Generally, tuition insurance could be worth the cost of 1% of tuition if there’s a chance your student might need it. While it may seem unlikely that you’ll use it, paying tens of thousands of dollars each year to a college is a big investment that can be protected with tuition insurance. There’s no other guaranteed way to get a refund if your student drops out of school or has an unexpected medical leave.
What does tuition insurance cover?
Tuition insurance mainly covers medical reasons for college withdrawal. If your student develops a medical condition or is injured in an accident that requires them to withdraw from school, tuition insurance refunds the costs you’ve paid for college.
Most policies will also now cover mental health conditions, including anxiety, depression or severe stress. However, these conditions must be clinically proven by a doctor, and the doctor must recommend that your student take time away from school.
Tuition insurance also normally covers semester abroad programs, as long as they are paid for through a US institution. And tuition insurance still applies if you’re paying for school using student loans or savings.
In general, tuition insurance covers:
- Medical conditions, including severe or chronic illnesses
- Accidental injuries
- Mental health conditions, including stress, depression and anxiety
- Temporary disabilities
- Death of the student — and sometimes the tuition payer
What’s not covered?
Tuition insurance is mainly designed for medical related issues, and there will be coverage exceptions. Each tuition insurance policy is slightly different in what it will cover. Thoroughly check the list of circumstances that are covered and excluded before buying your tuition insurance policy. A list of typical exclusions includes:
- Academic-related withdrawals
- Disciplinary probation or expulsion
- Some pre-existing medical conditions
- Cost or financial reasons
- Injuries during extreme sports
- Intentional injuries
- Pregnancy — some policies may cover it
- Pandemics — some policies may cover it
- Suicide — some policies may cover it
- Drug or substance abuse — some policies may cover it
Does tuition insurance cover the coronavirus?
While pandemics aren’t usually covered by any type of insurance, there are some insurers that are covering COVID-19 in their tuition insurance policies. Even if the policy excludes pandemics and epidemics, the insurer may choose to extend coverage for absences due to the coronavirus. Talk to your insurer about the coronavirus and see if it’s extending coverage.
Pros and cons of tuition insurance
- Reasonable cost. For only 1% of your tuition cost, it’s a reasonably priced added expense that you’ll be glad you bought if you have to use it.
- Protects your investment. With total college expenses costing anywhere from $80,000 to over $200,000, tuition insurance provides protection for this heavy-duty investment.
- Covers all college fees. Tuition insurance covers more than only tuition, with fees, room and board also included.
- Your student must withdraw for coverage. If your student gets hurt or sick but can still go to school, they won’t be able to collect a claim. Most illnesses or injuries are short-term in nature, which means they may have to miss time from school but won’t have to withdraw from the semester. These short-term, temporary absences aren’t enough to get a tuition refund.
- Policies vary on what’s covered. There isn’t a standard tuition insurance policy, each policy is slightly different. If you buy a policy that doesn’t cover the reason that your student has to withdraw from school, you’ll be out of luck.
Alternatives to tuition insurance
There is no exact substitute or alternative to tuition insurance. While there are other options to consider, all of these will likely cost the same or more than tuition insurance.
- Life insurance. Term life insurance is relatively cheap for most young college students, and the tuition payer may already have a life insurance policy that can have a child rider added to it. Life insurance pays in the event of a death, though college expenses that have already been paid still won’t be refunded.
- Health insurance. Health insurance pays for most expenses associated with an illness or injury, but wouldn’t pay the college tuition.
- Disability insurance. Disability insurance pays a monthly benefit amount if you become disabled, similar to income. But it’s paid in a monthly amount and likely wouldn’t cover the cost of a college tuition.
- Accident insurance. This type of insurance will pay for sudden and accidental injuries or illnesses. It’s basically a combination of disability insurance and life insurance that pays for medical expenses, lost income or death from an accident. This policy would pay for additional expenses incurred by an accident, but it wouldn’t pay a college tuition reimbursement.
- College refund policies. Most colleges have refund policies for withdrawals that take place within the first weeks or first month of classes. However, if your student withdraws after the specified time frame, you won’t receive a refund.
Compare life insurance as an alternative to tuition insurance
Tuition insurance offers a reimbursement for college expenses, including tuition, room and board, if your student has to withdraw from school. It’s mainly designed to cover medical reasons that would cause the withdrawal, but each policy is slightly different in what’s covered and what’s exempted. Costing just 1% of the tuition amount, tuition insurance may be a worthwhile addition to your college expense budget.
If you’re also considering life insurance for yourself or your children, compare life insurance companies to find the best fit for you or your family.
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