Does college student need life insurance?

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Q. I’ve heard that I should get life insurance for my son, who starts college in September. This would be to cover his college loans — he will need many — should something ever happen to him. Does that make sense?
— Mom

A. Life insurance is often used as an income replacement tool, so unless your child is a breadwinner, insurance is often unnecessary.

But buying a policy when a person is young does have advantages. You’d have the benefit of very low premiums. And if your child has health problems down the road as an adult, buying life insurance later could be very expensive or even unavailable.

You’re talking about a policy to cover a very specific goal: paying off student loans.

Federal loans would be forgiven in the case of a death, but not private ones. So yes, an insurance policy could be a great idea.

You’d need to decide what kind of policy is right for your son.

There’s term insurance, which is the least expensive kind of policy.

As the name suggests, the policy would be in force for a certain number of years as long as premiums are paid. You could select a policy term that would last for the time period until the loans are paid off. There are also term insurance policies that have a decreasing benefit over time, which could be appropriate as the need for insurance diminishes.

Then there are permanent policies. While these are more expensive, they’d last for your son’s lifetime — longer than student loan debt will be around — as long as he pays the premiums.

These policies have living benefits, too.

A pure whole life policy, preferably from a mutual life insurance company, can be right for a college student, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

He said policies can be designed to lock in premiums at a young age for life, would share in the insurance company’s profits in the form of dividends and build cash value that is not subject to market risk. They’d also have guarantees, tax advantages, values that are protected from some creditors and can be used to supplement retirement benefits.

The death benefit will also increase over time, keeping pace with inflation, he said.

“Your child will have a policy in place when life insurance becomes important to them at some point in the future,” Gaelick said. “They will also then own a financial product that has already accumulated cash value.”

He noted how much you allocate towards a policy will determine the future values.

Gaelick said one of the best features of whole life is that current values are not at risk in the stock market, so a downturn for stocks won’t impact the values already in the policy.

“An option that I find very important is `waiver of premium,'” he said. “This rider will waive the premium deposits in the event of a total disability.”

With this benefit, the insurance company will make the deposits for you, protecting the benefits and cash accumulation — and you don’t owe that money back.

He recommends you consult with an unbiased advisor who has vast experience in whole life to properly explain all the advantages of owning whole life and which carriers to consider.

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This post was first published in June 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.