FOOTING THE BILL at some colleges and even some private elementary and high schools can be just as expensive as buying a luxury car every September.
But while it's long been second nature for people to insure their Porsches and BMWs, it's only recently that parents started seriously considering insuring their child's education. With tuition rates skyrocketing and a weakening economy, obtaining tuition insurance is becoming a much more accepted way for parents to protect their investment.
Tuition insurance allows parents to recoup some or all of their money should their child have to leave school midway through a semester, say, due to an illness or, in the case of K-12 schools, if a parent loses a job or has to move away. Offered through schools by third-party insurers, these policies cost anywhere from 1% to 3% of tuition per semester. With the average tuition at a private college clocking in at $24,000, according to the College Board, that comes out to between $100 and $200 a semester.
Here are some tips to help you decide whether a tuition insurance policy is right for your family:
Know your options
In some cases, you may only have one: Many private K-12 schools allow you to forego insurance only if tuition is paid in full at the beginning of the school year a hefty sum considering that some elite schools charge as much as $30,000 a year. Losing one student's tuition due to a parent's job loss or insolvency can pose as much of a financial burden on a small private school as it does on the family.
At colleges and universities, on the other hand, obtaining tuition insurance is voluntary. "At the K-12 level, the school is interested in protecting its tuition revenue," says David Galvin, an insurance agent who works with schools. "The colleges are just making it available."
In most families' situations, however, obtaining a policy covering college tuition isn't necessary. After all, most colleges will reimburse all or part of the tuition paid if a child withdraws by a certain deadline, usually within the first several weeks of the semester, Galvin says.
Know what's covered
Schools that offer these plans will typically send out literature about it well before parents send in their first tuition checks. Before signing on, parents should read the information carefully to understand what they're paying for.
Plans offered at K-12 schools, for example, tend to offer much more comprehensive coverage than those offered at colleges. While college policies usually only pay out when a student leaves for medical or mental-health reasons, K-12 policies cover withdrawals for everything from a parent's sudden unemployment or job transfer to a student's suspension from school.
Also, figure out what type of reimbursements to expect. Some plans only provide a partial reimbursement for certain types of withdrawals. Many college plans, for instance, only return around 60% of tuition if the student withdraws for mental health or emotional reasons.
Evaluate the risks
If you're considering insuring tuition at a college, think long and hard. It may only be worth it if you believe your child runs a good chance of getting so sick that he or she will have to drop out. That's a hard sell for Tim Higgins, a certified financial planner who specializes in advising families saving for college. "We're talking about the health of a 20-year-old," he says. (Higgins does not sell tuition insurance).
Parents with children attending private elementary or secondary school, on the other hand, may find that obtaining tuition insurance makes more sense, especially if they work for a company that's facing layoffs or if they're in a profession that requires them to move a lot. And while parents may think their son is a brilliant little angel at home, they should also consider whether he's struggling with disciplinary or academic issues at school and risks being transferred or, worse, kicked out.
For some parents, even if it seems highly unlikely their child will have to leave school early these insurance policies can offer tens of thousands of dollars in comfort. "This seems like a relatively small amount of money for peace of mind," says Terri Blanchard, an administrator at Kenyon College in Gambier, Ohio, where about 13% of students bought tuition insurance last year. Blanchard said she bought the insurance when her own son went off to school. "As expensive as college is, it's not a bad investment," she said.