For many, a college degree is still the preferred route to a job and earning a living. As college becomes more expensive every year, many students need to finance at least part of their school expenses, and many people end up in debt just as they are getting started. Even worse, some young adults pass on before their school loan is paid back. In that case, what happens to the money owed?
How life insurance can help with student loan debt
There are a couple of things that can happen if you were to die before your student loans are paid off. If you have a federally-backed student loan it will generally be discharged upon death, provided the borrower’s family can provide the necessary documentation. Privately backed student loans may be more difficult regarding repayment, even due to death.
In this case, individuals and families can help prevent financial difficulties related to school loans by having the debt paid by the proceeds from a term life insurance policy. The policy death benefit can match the amount owed on the loan, and be reduced in the future as the loan balance is paid down. The coverage you get should be equal to the loan balance -- $50,000 in coverage for $50,000 in loans, for example -- and the policy term should be similar to how long you think it will take to pay off the loan.
Term policies generally have premiums that don’t change for 10 or 20 years. Whether a parent takes out insurance on their child or asks them to purchase their own coverage, term life insurance can help ease the financial burden on a family from having to deal with huge amounts of debt should tragedy strike.
Cosigners, spouses and student loans
It gets more complicated if a student loan involves a cosigner, as they often do. If you are married, your spouse may be held liable for your debt even if he or she did not cosign for your loan, depending on a number of factors. If you have private student loans that are cosigned, both you and your cosigner are at risk if something happens to either of you before the loan(s) are paid off.
Should something happen to you, your cosigner will be 100% responsible for the debt. If the person who cosigned on your loan passes, the debt could be called in, even if you’re paying on time. So in this case, not only does life insurance help provide financial protection for the person who co-signs for you, it covers both you and your co-signer should something happen to either of you.
Farmers Term Life can help with student loans
Farmers Term Life Insurance is a cost-effective way to help provide financial support to your loved ones who may bear the burden of your debt should something happen to you. Policy options are available to work with your financial situation, making term life an attractive option to help to cover financial responsibilities that decrease or end over time, like mortgages or student loans, should something happen to the insured.
Still have questions? Talk to us at 858-487-9200 and we'll get you fixed up.