Usually, people purchase life insurance policies to protect their children or spouse. Here's another reason, which you may find interesting because not everyone knows about it.
Your kid, your spouse, even your parents or siblings... you might provide financial support to any of these family members. If that's the case, you probably worry about what will become of them if you should pass away before they do.
Of course that's one common reason people purchase life insurance. They want to know their loved ones will be protected from financial hardship if a breadwinner of the family dies.
There are other reasons for purchasing life insurance, of course. Here's one that you've probably never heard of : protecting your investment when your child goes to college.
Insuring Your Investment in a College Education? You Betcha
This may sound a little unusual to you, but it does occur on a regular basis. Americans have been insuring their kids' college education for decades! It's a tradition hearkening back to the 1940s, and it works like this:
You "invest" a lot of money in sending your child to college... if, heaven forbid, your child dies, that money can come back to you in the form of a life insurance payout.
If that sounds grim to you, consider that although nobody likes to talk about it, people die all the time. Chances are, your child won't die in college but if they do, it would really add to your misery to be stuck with tons of debt along with your intense grief.
Life Insurance for College Students, Especially for Private Loans
If you're paying a big chunk of your child's college education out of pocket, then yes it's wise to consider "insuring" that investment with a life insurance policy.
But then there's the matter of student loans. If your college student has taken out private student loans and you're the cosigner, then you'll want to do more than consider a life insurance policy on your student: you'll probably want to take action.
For Federal student loans, the debt is discharged upon death of the borrower. Private loans, however, live on even after the student has died. The debt falls to the cosigner. So, along with trying to cope with a tragic and untimely death, parents left behind now have a major chunk of new debt to contend with.
That means, while in the midst of mourning, you'll have to come up with the payments for that private loan, since they'll still be due right on time every month.
Whether it's to protect your own investment in your child's college education or to protect yourself from having to pay off a student loan, a life insurance policy can actually make sense for a young, healthy college student with no dependents after all. Now you know!
Chris Hardy - CFP®, EA, ChFC®, CLU®,