Disclaimer: This post is sponsored by Allianz Global Assistance (AGA Service Company) and I have received financial compensation. However, all thoughts and opinions are my own.
When you think about insurance, you often think about your car, home, and life insurance. You have probably heard that many movie stars insure various body parts, such as their legs, in case something happens to limit their earning potential.
However, most students (and their parents) don’t know that college tuition can be insured as well. What happens when you don’t complete your college education as originally expected? Or worse, you become physically or mentally ill and are unable to continue attending your higher education institution?
Tuition insurance may be the answer. Let’s take a look at whether tuition insurance is something worth considering, based on your circumstances. There is an alarming increase in the rate of students who start college but do not complete their education. While there are different reasons for students dropping out of college, tuition insurance can cover unforeseen and extraordinary reasons for withdraw, such as illness or drastic changes in circumstances.
However, like any insurance product, there is a cost. So you need to weigh the potential benefits versus the cost (and we’ll talk more about that below).
What Is Tuition Insurance?
Tuition insurance, also known as tuition refund insurance, provides coverage for students if they face circumstances where they must withdraw from school in the middle of a semester, usually for medical or mental health reasons. However, some plans cover almost any reason for no longer being able to attend school.
Simply put, tuition insurance offers a way for full-time college students (or their parents) to recover the cost of paid tuition, fees, room, board, and other eligible education expenses in the event that the student unexpectedly withdraws from school.
How Does It Work?
College tuition insurance will provide for a full or partial refund of tuition, fees, and room and board if a student withdraws for a “covered reason” (a reason covered under the tuition insurance policy). It is extremely important to review the policy in detail to fully understand what is covered under the insurance plan.
Tuition insurance may be useful if the student faces a life-changing illness or accident and is unable to continue with their education. It can also be a valuable tool for students who are managing a chronic medical condition such as asthma or Crohn's disease.
Most colleges prorate tuition refunds on a sharply declining schedule, so after a few weeks you may receive only a small fraction of your tuition costs, or even nothing at all.
While some colleges have a more reasonable tuition refund policy that would eliminate the need for tuition insurance, tuition insurance may cover additional out of pocket education expenses not otherwise covered under an educational institution’s tuition refund policy. As a result, any out of pocket expenses paid towards education can be recovered in the event that the student cannot continue attendance.
Schools are following the trend and starting to offer third-party tuition protection in partnership with Allianz, for example. However, tuition insurance can also be purchased directly from a tuition insurance provider.
Tuition insurance must be purchased prior to starting the first day of college. It reimburses some or all college costs, even after the college has issued any refunds if a student withdraws for an unforeseen covered reason. Tuition insurance may also offer coverage in the event of the death of a student or a “tuition payer.”
In effect, tuition insurance is presented as a good “backup plan” to cover students if they withdraw from school not only for medical or mental health reasons but also other reasons covered by the insurance plan.
While the concept of tuition insurance is straightforward, every tuition insurance plan has its own rules and limitations for coverage. Take some time to review the policy of your college or university, and then review tuition insurance policies in an effort to close any gaps in the tuition refund policy.
Requirements For Coverage
Generally, tuition insurance covers certain qualified events, barring recovery in the event a student drops out simply because they are not interested in higher education, or that particular institution. However, some plans cover withdrawal for any reason with a slightly higher premium.
Typically, students must have a qualifying medical event in order to qualify for a tuition insurance reimbursement. Some policies will protect against withdrawal for any reason, although non-medical circumstances typically qualify for a refund of up to 60% of their tuition. For example, under Allianz coverage, pre-existing medical conditions are covered so long as the student is not exhibiting symptoms of illness on the day of purchase.
Some tuition insurance plans may cover a student’s withdrawal due to covered medical and/or psychological conditions. Most tuition insurance policies require that the circumstances for withdrawal are unforeseen, and the reasons also must be covered under the insurance policy.
If a student enters the semester expecting or planning to withdraw for some reason, most tuition refund policies would probably not cover that planned withdrawal.
What Is Considered A “Covered Reason?”
Some plans reimburse 100% of covered costs; others reimburse only 50% to 90% of the amount of money you lose by withdrawing. Tuition insurance might seem a good idea if the student has chronic health issues, but make sure your policy covers pre-existing conditions.
Not all instances are covered under tuition insurance, since every tuition insurance plan has its own list of covered reasons. One thing to keep in mind is that tuition insurance is not medical insurance, and does not cover medical care.
While many student tuition refund plans do not cover existing medical conditions as well as conditions such as anxiety and depression, certain policies cover a variety of reasons for withdrawal.
For example, Allianz Tuition Insurance has a range of plans to protect both in-state and out-of-state non-refundable college tuition in the event that a student withdraws from school for a covered illness, injury, psychological/mental disorder, or other reasons. One of the plans provides coverage for almost any unforeseen reason that may cause a student to leave school.
What Happens If You Have Student Loans And Financial Aid?
Another concern students may have is how student loans and financial aid are treated in their tuition insurance plan. If a student is paying for tuition using a student loan, he or she is still eligible for insurance and for a tuition refund.
If the student is still responsible for paying back the student loan after withdrawing from school, then tuition insurance will refund that amount minus any refunds given by the school. The same applies for any financial aid.
Keep in mind that tuition insurance only reimburses the student for costs paid out of pocket, including student loans. If a student receives a grant that is paid directly to the school, the student would not be eligible for a refund of that amount.
This can really be helpful for borrowers who take out student loans – especially private loans. Federal loans have a lot of options to help borrowers, but private student loans do not. Tuition insurance could be a helpful solution to protect borrowers if they don’t complete school.
How To File a Tuition Insurance Claim
Different policies have different requirements. In order to collect on the tuition insurance, you need to review the policy and document all claimed expenses. Next, you will likely have to get a doctor’s recommendation as to why you withdrew from school.
The paperwork is then submitted to the tuition insurance company and when the claim is approved, the tuition reimbursement is paid directly to the policyholder.
While many policies do cover mental health issues, your provider may require that the covered student can demonstrate that he or she received care in a hospital prior to withdrawing.
Is Tuition Insurance Really Worth It?
It really depends on the tuition refund policy offered by the school the student will be attending. Tuition insurance can often make sense because some schools have very stringent policies for issuing tuition refund.
Most colleges will reimburse all or part of the tuition paid if a student leaves school by a certain deadline, typically within the first few weeks of the semester. If you withdraw from your classes within the allowed time period, you can get your money back, and afterward, the refund scale may be prorated by a percentage based on attendance time in the academic period. As a result, tuition insurance for colleges is often viewed as redundant and unnecessary.
However, tuition insurance protects a student for the entire semester, not just for the beginning weeks of class. If a student needs to withdraw halfway through a semester for a compelling reason, tuition insurance may be a good option.
The biggest benefit of a tuition refund plan is peace of mind for parents and students. Tuition insurance reassures parents that their child’s education is protected, and the money saved for higher education will not be lost in the event of an unforeseen circumstance.
Students know they can safely withdraw and come home for a while if their college career is derailed by illness, mental health issues or some other covered reason.
Plus, tuition insurance is relatively inexpensive, especially for students who are taking out a lot of student loans. For example, Allianz offers tuition insurance packages at the following levels (based on a $10,000 tuition insurance policy):
Do you really need tuition insurance? It depends on the refund policy of the educational institution you are attending. Then, you must weigh the cost of the plan against the risk of voluntarily or involuntarily being unable to complete school.
The funny thing about unforeseen circumstances is that they are – well, unforeseen. And given that the burden of student loan debt for a lifetime, combined with the inability to get a good paying job due to not completing college, the low prices of tuition insurance can be a good investment.
It also never hurts to simply get a quote online for tuition insurance and see if it makes financial sense for your situation. Get a quote here.