Can Life Insurance Be Used To Cover Student Loans?
If you’re saddled with large amounts of student loans upon graduating from college, you’re likely far from being the only such person. According to Forbes, collective student debt in the United States totaled around $1.7 trillion in 2021. If this is your situation, you may likely be seeking different strategies to pay off this debt as soon as possible. You may have hired a financial adviser who has guided you through a detailed plan designed to ensure you repay all your loans, regardless of the interest rate they carry.
What you may not know, however, is that there is one type of insurance policy that can help cover student loans: life insurance. Here is a resource guide to how life insurance can help alleviate this debt burden.
What Happens To Your Student Loans’ Status After You Die?
Generally speaking, students loans are either forgiven or become the responsibility of the surviving individual(s). However, the answer to this question varies depending on the type of loans you take out.
Federal Loans
Federal loans, which the U.S. Department of Education directly issues, are forgiven once you pass after all required documents have been submitted.
Private Loans
These are loans issued by private institutions such as banks, lending agencies, or credit unions. Private loans typically have unique terms and conditions for how they should be handled upon someone’s death. In general, however, private student loans become the estate’s responsibility.
Parent PLUS Loans
These are a subcategory of federal student loans and are also, therefore, discharged when either you or your single parent (to whom the government issues the loan) dies.
Life Insurance For Student Loans
It’s always difficult to lose a loved one, but it can be especially challenging if this individual had outstanding student loans at the time of their death. Fortunately, if you’re a cosigner on your deceased loved one’s loans (i.e., a parent) and have a good credit record, you can reduce or erase this debt by purchasing a life insurance policy and ultimately have enough funds to finance other investments such as a mortgage or childcare. This type of policy is generally most affordable when you’re healthy and young. Many insurers offer three different types of life insurance policies:
Term Life Insurance
Also called “pure life insurance,” this type of policy guarantees payouts of death benefits only if the insured dies during a specific time period or “term.” The policy can be renewed when the term expires.
Whole Life Insurance
This is also known as a “permanent life policy” and allows you to accumulate cash savings over the course of your entire life.
Guaranteed Insurability Option (GIO) Rider
This is a customization that allows you to increase death benefits without undergoing another medical screening. This can help you save money. GIO riders are typically added to whole life insurance policies and are subject to approval from underwriters.
Get High-Quality Life Insurance From Matador
Contact the professionals at Matador Insurance to learn more about how you can use life insurance to cover student loans. If you have recently lost a loved one who had outstanding student debt, our agents understand exactly the type of situation you are in and can help guide you through every step of this process so that you can alleviate your financial burden.
We offer several types of life insurance policies and can clarify any confusing information. Reach out to Matador Insurance Services today by contacting us online for more information on using life insurance to cover your student loans.
