Complementing student loans and life insurance may seem unusual. But, buying a policy when you have student loans makes good sense. It could protect your survivors from financial ruin.
If you plan to finance your college education with student loans, you should consider buying a life insurance policy. Some find it uncomfortable to think about planning for death, when so much life lies ahead. But, pairing student loans with life insurance makes sense for your overall financial plan. It helps meet your responsibility to those left behind.
There are two types of student loans that allow you to borrow money to pay for education expenses. The first is federal loans. They carry a low, fixed interest rate, and offer flexible repayment plans. Banks, credit unions or other lenders issue private loans. These often carry variable rates, and don’t offer repayment flexibility. Many require a cosigner and fall short when it comes to borrower protection. This type of loan adds another level of risk to your financial health.
Federal student loans provide forgiveness should the borrower die. This is why you should take advantage of as much federal aid as possible. Private lenders are not required to discharge the loan. They can demand all or part of the remaining balance to be paid out of your estate. This can negatively impact your survivors’ finances.
You signed on the dotted line…
If your loan has a co-signer, he or she could be responsible for any outstanding balance. This could be a substantial hardship, especially if they are unable to take on additional debt. Also, student loan debt is immune to bankruptcy and can not be discharged. It must be repaid.
How do you financially protect your loved ones if you should die? By planning for the unexpected, you can avoid creating a financial disaster for your survivors.
If you buy life insurance and die, you can use the death benefit to pay off your student loan debt. Here’s an example, using a term life insurance policy:
Let’s say you must repay your loan over 10 years. You can consider buying a term policy for the same length of time. The policy expires when the loan retires.
If you die before the term ends, the policy’s death benefit protects your loved ones from financial ruin. Your professional insurance agent can help you find a suitable product to meet your needs.
It’s hard to think about death, but it’s important to do so. With smart planning, you can help ensure financial security for those left behind.