Is tuition refund insurance worthwhile?

College is a big investment, as expensive as buying an automobile or a house. You insure your car and your home, why not insure your child's college education? Tuition refund insurance provides a full or partial refund of college costs -- including tuition, fees, room and board -- in the event your child is forced to withdraw midway through the school year for medical or other reasons. A handful of colleges (and private elementary and secondary schools) offer tuition refund insurance through third party insurers. The cost is typically 1% to 5% of the face value of the coverage per year, ranging from $100 to $1,000 depending on the college's costs and claim history.

What's Covered?

Most tuition refund insurance programs will provide coverage for medically necessary withdrawals due to illness or injury, death of the student or death of the parent or guardian. Coverage for these situations is usually at 100%. Some programs also provide coverage for involuntary job loss or relocation, mental health withdrawals, voluntary withdrawal and dismissal or suspension for academic or disciplinary reasons. This coverage usually involves coinsurance that reduces the benefit by 10% to 40%. Mental health coverage, for example, is typically limited to 60%. The amount of the benefit is also reduced by the amount of any refunds due from the college.

Most policies include a preexisting condition exclusion of 6 months to a year. However, the preexisting condition exclusion may be waived after 6-12 months of coverage, depending on the policy. There are also usually exclusions for suicide or intentional self-injury, injuries from participation in protests and demonstrations, and withdrawals due to the use of controlled substances or alcohol abuse.

Is Tuition Insurance Necessary?

Is tuition refund insurance really necessary? After all, most 17-20 year olds are healthy and most colleges will provide a partial refund if the student withdraws. Most colleges will provide refunds prorated based on the percentage of the semester completed before withdrawal, paralleling the federal regulations regarding the return of federal student aid funds. However, some do not, so it is important to ask about the college's refund policy. Even when the college has a generous refund policy, the family will still incur some costs. Also, while federal education loans will be discharged in the event of the death or total and permanent disability of the student or if the school closes before the student's graduation, most private student loans do not provide such discharges. Tuition refund insurance might not be financially worthwhile, but it does offer peace of mind. This is especially true at higher cost private colleges and for families who don't qualify for financial aid.

Sources of Tuition Refund Insurance

While tuition refund insurance has been around for more than 75 years, there are still only two companies offering it. A.W.G. Dewar, Inc. offers the Tuition Refund Plan and Education Insurance Plans (EIP) offers the Tuition Protector. For additional information, see Tuition Refund Insurance on the FinAid site.