Some facts about tuition refund insurance March 5, 2012

Ian Welham discusses the basics of tuition refund insurance

Ian Welham discusses the basics of tuition refund insurance

Have you ever used travel insurance? Colleges have something similar called tuition refund insurance. Tuition insurance reimburses you for college costs if your child is forced to withdraw from school for medical or other reasons. A few parents recently asked me about it.

Some colleges and universities offer tuition refund insurance directly. Some offer it through a third party. There are some group policies out there from companies such as GradGuard.

At $100 to $1,000/year, tuition insurance might be considered a bargain — especially if your child is attending a $50,000+ college and you’re paying the bulk of the cost out of pocket. Here are some pros and cons to weigh.

First, most 18-21 year-olds are healthy. So the insurance might be more for peace of mind than anything. Some offer extras such as identity theft protection and emergency medical evacuation — something to consider if your child is going to do a semester abroad and you don’t already have that coverage with your credit card or elsewhere (make sure coverage extends overseas).

Before you buy a policy, double-check your college’s refund policy. Many universities offer full or partial refunds if you withdraw for health reasons, so insurance may be superfluous. Often, the schools who sell tuition refund insurance don’t have a generous refund policy. Shocker, right?

Pay close attention to the exclusions. Many plans exclude suicide or intentional selfinjury, injuries from participation in protests and demonstrations, and withdrawals due to the use of controlled substances or alcohol abuse.

I’d also check how the insurance company views pre-existing conditions. Are they covered or excluded? That’s not the type of fine print you want to discover after the fact.

With some plans, not all sicknesses are treated equally. For example, if your student withdraws due to a physical injury, you get 100% of your tuition money back. However, if your student leaves because of mental health issues, you get only 60-75% of your money back. This is important because, according to a recent New York Times article, insurance companies “get more claims for mental health-related withdrawals than for physical injury or illness.” And not only is the payout less for mental health claims, but a 2-day hospital stay is required before a claim is considered.

If your child has struggled with mental health issues, I recommend reading the Times article. It can be found at: http://www.nytimes.com/2011/07/23/your-money/studentloans/a-tuition-refund-policy-that-pays-less-for-mental-illness.html?pagewanted=all

There is one exception we found (there may be others but this is the only one we’ve come across). According to their website, GradGuard’s Tuition Refund Insurance covers “100% of covered fees due to medical ‘disability’ withdrawal due to emotional, nervous or mental disorders. The key word there is “disability” and you want to make sure you completely understand what’s meant by that. Also, coverage is excluded if the “Loss” first occurred before the “covered person’s” “period of coverage.”

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This post was written by admin on March 5, 2012
Posted Under: College Funding

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Ian R. Welham, Certified College Planning Advisor  -  Tel: 973.467.0101