Life insurance is something that people generally don’t consider getting until they have a spouse or kids who depend on their income. Another reason individuals may decide to get life insurance through sites like Policygenius or Haven Life is when they have joint debt, like a mortgage or car loan, with their spouse.
Many borrowers may also wonder if their spouse might be responsible for unpaid student debt in the event of an unexpected death. Or for those with cosigned loans, whether their parents would be on the hook for their student loans.
Here’s a look at repayment rules and whether you should consider student loan insurance in the form of life insurance coverage when you have high student debt.
Do you need student loan insurance?
The answer to that question depends a lot on whether or not your student loans are federal or private. Let’s take a look at both scenarios.
Federal student loans
If your student loans are all federal, you’ll be happy to learn that all federal students loans are discharged at death. Parent PLUS Loans are discharged upon the death of the student or the parents.
Private student loans
Unfortunately, if you have private student loans, the waters are murkier. Some of Student Loan Planner’s favorite private lenders offer a death benefit, but many do not.
If your private student loans were taken out in your own name, then your family members should be shielded from any repayment responsibility. However, lenders could potentially try to come after your estate.
You may want to consider getting a life insurance policy that covers your student loans after your death, particularly if you have a home or other large assets in your estate.
Cosigned private student loans
If you have cosigned private student loans that don’t offer death forgiveness, your cosigner would become responsible for your student debt upon your death.
For a large majority of borrowers, their parents are the cosigners on their student loans. For this reason, many parents decide to put a term life insurance policy on their children to protect themselves against the risk.
If you don’t want your parents to have to pay life insurance premiums on your behalf, you can take out a term life insurance policy in your own name. This may be your best option for protecting your parents if you’re unable to secure a cosigner release on your student loans.
What about high-net worth life insurance?
People who work in fields that are generally high-paying, like lawyers and medical professionals, often face an unusual situation. They have a generous income and may even own significant assets while also having huge student loan balances.
In this case, the thought of lenders coming after your estate to recover outstanding balances is an even bigger concern.
How much life insurance do high-net worth student loan borrowers need?
The general rule of thumb with term life insurance is to aim for a policy that’s worth at least 10 times your annual income.
However, if you have a high net worth and massive student loan debt, you may want to increase that amount. You’ll want to take out a life insurance policy large enough to pay off your student loans in a lump sum, in addition to replacing 10 years of income for your survivors.
Life insurance for doctors with big student loans
Life insurance for doctors can be especially tricky. On the one hand, you should make a ton of money throughout your life. On the other hand, you’ll likely graduate medical school with huge amounts of debt.
Residency can be especially tough. Because you’re in school for twice as long as the average college graduate, doctors in residency are often already married with kids. And policies will be cheaper when they start residency than they will be three to five years after they graduate.
Yet, doctors also receive low pay in residency. They may not have the income to afford the premiums for the amount of life insurance they expect they’ll need just a few years after graduating residency.
Laddering life insurance policies
Although getting the appropriate amount of life insurance for physicians in residency can be difficult, one cost-cutting option is to ladder policies.
For example, if you anticipate you’ll eventually want around $2 million in student loan insurance coverage, you could buy two life insurance policies: a $1 million, 15-year policy and a $1 million, 30-year policy.
You may be surprised to learn this is cheaper than buying one $2 million policy with a 30-year term. After plugging in the numbers on Policygenius, the insurance quotes for each policy were:
- $1 million policy (15-year term) = $23 per month
- $1 million policy (30-year term) = $54 per month
The total was $77 per month using the laddering strategy. By comparison, a $2 million policy with a 30-year term would cost $104 per month — $27 more per month.
This laddering technique can save you even more as you start looking at larger policy totals. For instance, a $6 million policy on Policygenius would cost $302 monthly. However, buying three $2 million policies with 10-, 20- and 30-year terms would be far more affordable.
Check out how the math played out below:
- $2 million policy (10-year term): $33 per month
- $2 million policy (20-year term): $45 per month
- $2 million policy (30-year term): $79 per month
That’s a total monthly cost of $157, resulting in $145 per month in savings.
This strategy also allows you to step-down how much you’re insured every 10 years as your net worth hopefully rises.
Student loan life insurance companies
Since you’ll just be getting term life insurance, most life insurance companies will be able to accommodate you.
However, you may want to start with one of the online-first companies, like Policygenius or Haven Life, which leverage technology to simplify the life insurance process.
Policygenius is a great place to shop for life insurance. Using their website, you can shop dozens of insurance companies at one time. It takes less than five minutes to see actual quotes.
After submitting some basic information, Policygenius asks for a few more details about your current health situation.
Once, you’ve answered these simple questions, click “Get quotes” to see the kind of premiums Policygenius’s partners could offer you.
Once you’ve selected a particular insurer, you’ll typically be contacted by one of their representatives to set up a medical exam. That’s all there is to it.
And while you’re shopping for life insurance, you also may want to get quotes for disability insurance. Some of its disability insurance policies even come with student loan riders, which help you make your student loan payments while you’re out of work.
Haven Life is a life insurance company that specializes in quick turnarounds on life insurance applications.
Using sophisticated algorithms, Haven Life analyzes your health data and makes approval decisions quickly. In fact, Haven Life can approve some customers for fully-underwritten life insurance policies in a matter of minutes.
Not everyone qualifies for these “Instant Term” policies that don’t require a medical exam. Eligibility depends on the health information provided. But for healthy applicants, Haven Life could be the fastest and easiest way to buy life insurance.
When it comes to making sure you have enough life insurance, student loans can make things more confusing. One of our student loan consultants would love to help. We can help you create a student loan plan that makes sense for you and your family. Book a consultation today.