Life Insurance & Student Loan Debt
Updated May 1, 2020 . AmFam Team
Earning a college degree is a dream many people pursue and accomplish. But while there are many opportunities that come with higher education, there can also be a substantial price tag.
Student loan debt is one of the largest financial burdens facing Americans today. A growing question among students and graduates is what happens to this debt if they pass away. While the answer to this generally depends on your individual situation, having a life insurance policy can ease some fears associated with leaving debt behind for loved ones.
By having a life insurance policy, you can provide money to your loved ones to use for any reason, including paying off any student loan debt they may be held responsible for after you pass away.
Private vs. Federal Student Loan Debt
Depending on the type of loans you have — either federal or private — different things can happen to your debt if you pass away before paying it all off.
Federal student loan debt is forgiven upon death or total disability and family members or your estate are not responsible for it. In this case, a life insurance policy payout to your beneficiaries could go to other things, like helping them with day-to-day expenses or replacing some of the income you provided while alive.
Private student loan debt may be different — you’ll have to ask your lender what their rules are about student loan debt if you pass away. In many cases, a private lender may require a cosigner to continue paying the balance.
If you have private student loans, ask your lender if they provide student loan death forgiveness. This will help you know what kind of debt you might leave behind should you pass away, giving you a better estimate for how much life insurance coverage you need.
Are Cosigners Responsible for Student Loan Debt?
With private student loans, cosigners may be on the hook for your student loan debt if you pass away. If your lender doesn’t offer student loan death forgiveness, you can generally expect that whoever cosigned your loan will be responsible for the debt.
For federal loans, things get a little tricky. If one of your parents cosigned a federal parent PLUS loan, the debt is discharged in the event of either your or their passing. If both parents cosigned this loan and only one of them passes away, the other parent is still responsible for the debt if you are still alive, too.
Are Spouses Responsible for Student Loan Debt?
If you pass away and your spouse is still alive, they may be responsible if your state classifies student loan debt as shared marital or community property — even if they didn’t cosign the loans. If you take out a loan while married in one of these states, the loan is considered to be owned by both you and your partner. There are currently nine community property states:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Alaska allows spouses to opt into community property, meaning you can choose whether or not to consider your assets as shared. It’s possible for a lender to come after your estate after you’ve passed if your student loan debt is considered community property. And if your estate doesn’t have the money, your spouse will be responsible for the loan.
If you have private student loans, it’s wise to include at least the amount needed to cover those loans should you pass away before they’re paid off when calculating how much life insurance coverage you need. And even if you only have federal loans, life insurance can still be a great benefit to your loved ones by providing some financial protection after you’re gone.
Life Insurance Policies for Education Loans
Student loan debt is a huge concern for so many people, especially those just starting out after college. But life insurance can be there to help ease some of that concern. Depending on your needs, there are different types of life insurance to consider.
Term life insurance
Term life insurance offers coverage for a specific period of time, like 10-, 15- 20- or 30-year terms. If you pass away while the policy is in effect, your beneficiaries receive a payout of the coverage amount you chose when you bought the policy. However, if the policy expires before you pass away, your beneficiaries won’t receive the payout.
This is a great option for younger people or those with a smaller budget, since term life insurance is usually less expensive than other types of life insurance.
Whole life insurance
Whole life insurance is coverage that lasts your entire life.1 While it’s typically more expensive than other types of life insurance, it has living benefits like cash value and potential dividends.2 Whole life insurance also has fixed premiums, which means your premium payments won’t increase, even if your health changes.
Flexible life insurance
Flexible life insurance is a type of policy that allows you to customize your coverage, even after you’ve purchased a policy. You can change the amount of coverage the policy provides, the amount of premiums you pay and when you pay them, and get additional coverages3 to further customize your flexible life insurance policy. This type of life insurance also has living benefits, like whole life insurance, including cash value accumulation. Flexible life insurance is a great option for those who need a life insurance policy that can be modified to fit your life’s changing needs.
Find out more about how to pay off student loan debt so you can be debt-free sooner. Connect with your American Family Insurance agent to discuss your life insurance options and find the policy that best fits your needs.
These are brief descriptions of coverage and are subject to policy and/or rider terms and conditions which may vary by state. Fixed and guaranteed premiums are statements about the policy as determined at issue, and any changes made to a policy may affect the premium and are subject to our underwriting rules. The words lifetime, lifelong and permanent are subject to policy terms and conditions. Whole Life and Flexible Life policies mature at age 121. Please check with an American Family agent for details on coverages and restrictions.
1. Subject to policy terms and conditions.
2. Dividends are not guaranteed.
Related Articles
- Life Insurance for Children
You understand the importance of providing a secure financial future for your loved ones, and purchasing a life insurance policy on a child (with the ability to transfer ownership of the policy in the future when the child becomes an adult) can help you do just that. Let’s take a look at how a life insurance policy can help you proactively protect your loved one’s financial future.
Why Is Children’s Life Insurance a Good Purchase?
A life insurance policy is a purchase that can last a lifetime. Whether you purchase it on your child or grandchild, there are a number of benefits.
Low premiums
Since the cost of life insurance depends largely on things like age and health, purchasing a life policy when they’re young can lock in a low premium for the entire policy payment term.
Protect their ability to secure life insurance in the future
One of the biggest benefits of buying life insurance on a child is protecting their ability to secure life insurance in the future. When purchasing a permanent life policy on a child, your policy might include (if not, you might have the option to add) a Guaranteed Purchase Option (GPO) benefit to ensure the opportunity to purchase additional life insurance on them at certain ages and life events down the road without a medical examination or proof of health.
Build cash value
A permanent life insurance policy has the ability to accumulate cash value year after year. The earlier you start, the longer cash value can build, so when you purchase a life insurance policy for children when they’re young, the cash value has a lot of time to grow before they may need to use it. And, if ownership has been transferred to the adult child, they can even borrow against their cash value* if needed.
Should I Purchase Permanent Children's Life Insurance?
If you’re purchasing life insurance on a child, most people select permanent life insurance since it is built to last the child’s entire life. A permanent life insurance policy provides not only a death benefit, but, as mentioned before, the policy also has living benefits, like the ability to accumulate cash value.
Purchasing life insurance can be a practical and simple way to help protect your loved ones’ dreams. Check out American Family Life Insurance Company’s DreamSecure Children’s Whole Life permanent life insurance policy to learn more. Or you can also check in with an agent — they’ll be able to answer any questions you may have about children’s life insurance options through American Family Life Insurance Company.
This is a brief description of coverage and is subject to policy and/or rider terms and conditions which may vary by state. Fixed and guaranteed premiums are statements about the policy as determined at issue, and any changes made to a policy may affect the premium and are subject to our underwriting rules. The words lifetime, lifelong and permanent are subject to policy terms and conditions. DreamSecure Whole Life Insurance policies mature at age 121. Please check with an American Family agent for details on coverages and restrictions.
*Any loans taken from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim or from the cash value if surrendered. If the loan balance grows too large for the cash value to support it, the policy could terminate.
Policy Forms: ICC17-223 WL, Policy Form L-223 (ND) WL, Policy Form L-223 WL, Policy Form ICC17-224 WL, Policy Form L-224 (ND) WL, Policy Form L-224 WL
- The Difference Between Annuities and Life Insurance
What’s the difference between life insurance and annuities? It’s a common question. If you wonder what it takes to secure a financial future for yourself and those you love, it may be one you find yourself asking. And that’s a very good thing.
The bottom line: life insurance can help provide your loved ones with the financial peace of mind they deserve if you were to pass away. Annuities provide a tax-deferred way to grow money and provide an income stream. Both should be considered as part of a long-term financial plan.
Although both share some similarities, the overall purpose of each is very different. Let’s take a quick look.
Life Insurance Helps Protect Their Financial Future
When comparing life insurance and annuities, the biggest difference is that life insurance is designed to help protect against a financial loss for others after your death. Annuities on the other hand help protect you financially while you’re still alive.
Life Insurance helps to financially secure your loved ones’ future, since the death benefit can help with things like replacing your income and meeting important financial needs such as:
- Funeral costs
- Daily living expenses
- Mortgage payments
- College funding
When you purchase life insurance, you aren’t purchasing it for you — it’s really a purchase for the people you want to take care of.
If you want to find the right life insurance for you and your loved ones, American Family Life Insurance Company has the customized options you're looking for. If you want to learn even more life insurance, read up on the specifics of how life insurance works.
Annuities Help Prepare You for the Future
Think of an annuity as a tool that could help meet your retirement needs. The primary purpose of annuities is to create income for you, and this can be done in a few different ways. You can set up payments that last for your entire life, a specific period of time or a combination of both.
There are many potential benefits of annuities. Some include:
- The ability to grow account value on a tax-deferred basis
- The potential for a future income stream that can’t be outlived
- The possibility of a lump sum benefit that can be paid to a surviving spouse
How do annuities work?
You can buy an annuity by giving your insurance company either a single lump sum or making payments over time. The insurance company then invests your money — referred to as a premium or purchase payment — in different ways depending on the type of annuity you select.
You can buy an annuity that begins making payments back to you right away — this is called an immediate annuity — or if you prefer, annuities are available that delay making payments to you for an extended period, sometimes many years.
Start Planning for the Future Today
Life insurance and annuities work in tandem to protect a future for yourself and those you care for. Now that you have a high-level overview, discuss with your agent how these options fit your needs.
Annuities are long-term insurance contracts intended for retirement planning. Annuities are issued by Protective Life Insurance Company located in Nashville, TN, with administrative offices at 2801 Highway 280 South, Birmingham, AL 35223, through a relationship with American Family Brokerage, Inc., 6000 American Parkway, Madison, WI 53783.
- How Often Should You Review Your Life Insurance?
When you think about why buying life insurance is important, you probably think of financially protecting your family and loved ones in your life when you pass away. With life insurance in place, you can help ensure financial support for those that matter most. But have you spent time reviewing your life policy and ensuring it still meets your needs since purchasing it?
We recommend reviewing your life insurance every year. Having the right coverage in place means less for you — and those you care for — to worry about. Because so much can happen in 12 short months, it's important to make sure your policy is right for you and your family today.
To get you started, we’ve put together a list of 9 key reasons why you should review your life insurance policies every year.
- How Cash Value Life Insurance Works
You most likely purchased life insurance for the financial protection it provides your loved ones in the event of your death — but there can be some additional benefits to life insurance. Some life insurance policies, such as DreamSecure Whole Life Insurance offers the opportunity to build “cash value,” otherwise known as a living benefit.
That living benefit is the value in your policy that may be borrowed against or paid out if the policy is surrendered before death.* Let’s take a closer look at how cash value in life insurance works.
