You can buy insurance on your college-bound child

06/28/2013 3:32 PM

06/28/2013 3:32 PM

You can buy peace-of-mind insurance for just about anything these days, from appliances and electronics to cruises and plane tickets.

Yes, there’s even a policy to protect your rather substantial investment in the 18-year-old who will be strolling onto a college campus this fall.

It’s called tuition refund insurance.

For a few hundred dollars, you get a policy that will reimburse your tuition, on-campus housing costs and possibly other fees if your student has to drop out of school for medical reasons, such as mononucleosis, injuries from an automobile accident or mental health issues. Family financial setbacks that result in withdrawal from school are also commonly part of coverage.

This is the time when colleges send out their final bill for fall enrollment, and it usually comes with a brochure about tuition reimbursement coverage.

Tuition refund insurance policies are strictly optional and are offered through colleges by a handful of companies, including GradGuard Tuition Insurance, A.W.G. Dewar and Education Insurance Plan.

At many schools, you can sign up for the plan until classes begin. Some schools allow you to enroll at any time.

With tuition, room and board at eye-popping levels, it could be very tempting to invest in an insurance safety net. But many experts consider the coverage a waste of money. Moreover, the likelihood that you’ll ever tap the insurance is pretty slim, a sample of data suggests.

So what should you do?

First, understand the school’s refund policy before making any insurance decision. Most colleges offer refunds on a sliding scale through the first month or six weeks of the semester in case a student withdraws. There is often room to negotiate with the school to get even more of your money back.

The specialty insurance companies that offer tuition reimbursement coverage say their plans provide broader protection on your college investment.

GradGuard, for example, offers automatic enrollment to all members of the College Parents of America, a nonprofit advocacy organization. The GradGuard policy offers 100 percent reimbursement for medical withdrawals and medically necessary withdrawals because of a mental or nervous disorder. Should you receive a refund from your school, the GradGuard policy will pay the balance of covered expenses.

Be aware that other insurance companies might cover only 60 to 75 percent for withdrawals for mental health reasons.

In addition, insurers generally won’t cover claims on a student who dropped out because he simply skipped classes, or for those who leave school because of substance abuse, self-inflicted injuries and even injuries from participating in a demonstration.

Pricing varies. Generally, the policies let you choose the amount of annual coverage, say from $5,000 to $50,000 for the school year. Your cost amounts to 1 to 5 percent of the face value of the coverage.

Dan Mathews, a financial planner with Stepp & Rothwell in Overland Park, thinks the policies don’t provide a great financial value for the expense.

“If you want to insure against death, you can always do it much more cheaply through the purchase of a term life insurance policy on the student,” Mathews said.

Nevertheless, Mathews and other financial experts suggest you ask yourself the following question before deciding on the reimbursement coverage: If you don’t have it, can you sleep at night without worry?

If the answer is no and you need that peace of mind, then tuition reimbursement insurance may be the way to go.


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