When Eric Del Sesto’s son got sick with a respiratory condition in the middle of his sophomore year at the University of the Pacific, his doctor recommended that he take a break from school.
It was too late in the semester to get a refund from the California university, but Del Sesto had purchased something called tuition insurance prior to the start of the semester. As a result, he wasn’t out the $21,207 he had paid in tuition. His insurance policy reimbursed him for that semester’s tuition.
“It’s a lot of money at risk, and you never think anything’s going to happen, but you just never know,” he says.
Aside from buying a house and saving for retirement, college tuition could be some families’ biggest investment. In 2016-2017, average tuition and fees plus room and board cost $45,370 at private colleges and $20,090 at in-state public colleges, according to the College Board.
Tuition insurance provides financial protection for withdrawal from school for a covered reason — most often for a medical reason, such as injury or illness, although policies are available that offer broader coverage.
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Shannon Vasconcelos, director of college finance for consultancy College Coach, says while the policies may make sense in situations where a student has a history of health issues, she doesn’t generally recommend them. Most policies only kick in for covered medical reasons , and “most college students are young and healthy,” she says.
“There are lots of reasons why kids withdraw from college,” she says. “On the list of things I can think of, there may be social reasons why they withdraw, emotional reasons, academic reasons, disciplinary reasons and financial reasons. Certainly medical reasons are on that list, but I think they’re way down the list. It’s much less likely to occur than all those other things.”
Del Sesto says that he was careful to make sure he understood the terms of his policy, which he purchased from Allianz Tuition Insurance. He knew he would need a statement from his son’s doctor, so he encouraged his son to see a doctor right away if he got sick.
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Allianz, one of the major tuition insurance providers, offers three different levels of plans. All of them cover existing medical conditions, says Joe Mason, Allianz chief marketing officer, but may pay out differently based on the type of claim. For instance, the company’s most popular plan — which costs $135 for every $10,000 in tuition coverage — pays out at 100 percent for injury or illness but 80 percent for a mental health disorder, which also requires proof of a hospital admission.
Allianz also offers a more expansive plan that offers a reimbursement — at a 50 percent pay out — for any withdrawal, with the exception of drug use or flunking out, Mason says. That plan comes at a premium — $600 for every $10,000 in tuition.
Allianz works with more than 100 colleges but also offers its insurance directly to consumers to use at any accredited, non profit institution of higher education. Another tuition insurance provider, A.W.G. Dewar, offers coverage for medical conditions at participating colleges. There’s also no exclusion for pre-existing conditions under Dewar’s plans, according to a company fact sheet.
“Tuition insurance is really about the unexpected,” Mason says. “It’s really, do you want to have a financial safety net in the event you have to forego all that money that you saved for college education? What we’re going after is trying to give some peace of mind.”
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Vasconcelos says to keep in mind that a withdrawal only affects one semester’s worth of tuition, not all four years.
She adds that the timing of the withdrawal is also important to consider. Most schools have their own refund policy on a sliding scale, offering some level of reimbursement if a student drops out within the first month or two of the semester. If a student drops out late in the semester, he or she might be able to make up the coursework later and eventually get credit, she says.
“I think these insurance policies are really only useful in the case of a mid-semester withdrawal,” she says. “You’re kind of weighing the likelihood, ‘what are the chances my child is going to withdraw for a covered medical reason right in the middle of semester?'”
Del Sesto says he was glad he took out the policy and says he would use the insurance again for his younger two kids.
“All things considered, a roughly 1 percent cost of insurance is very reasonable,” he says. “It’s a lot of money you put on the line.”
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Tuition Insurance: Is it Right for Your Family? originally appeared on usnews.com
