Many families struggle financially to get their children solid educations at reputable institutions. But just as it may be a hardship for families to come up with the cash to pay for a college education for the kids, if students suddenly withdraw from college, it can be devastating to lose unreimbursed tuition for good. In seeking to deter any potential financial blows, tuition insurance has appeared as one solution. This type of insurance is designed to alleviate monetary losses in the event of an emergency or setback. Here we'll take a look at tuition insurance.

The Plan
Companies that offer tuition insurance indicate that it's a means to ease the financial burden if a student withdraws or is dismissed from his or her school. This insurance generally allows parents to get some or all of their money back if their child leaves school partway through the year. It's offered to students in public and private colleges, and even those in K-12 private schools, typically with the help of third-party insurers.

Most families that participate can get a refund for their students attending private elementary and secondary schools under certain conditions that include a parents' job loss, a sudden move to another city or illness. The circumstances are stricter for college students. Most agencies only offer reimbursement if a doctor's note proves that a student has become ill.

The costs for the insurance vary. The size of the school, cost of tuition and school's pattern of withdrawal can influence the amount of the insurance offered, which on average costs 1-3% of the price of school the tuition.

The idea of providing this type insurance isn't new. According to Dana Tufts, president of the insurance company A. G. Dewar, Alex Dewar invented the concept in England and brought it to the United States in the 1930s. As of 2008, 200 colleges were using the company's tuition refund plan, along with more than 1,000 K-12 private schools.

Policies are filed with each state's insurance department in order to provide parents, schools and colleges with complete consumer protection.

Is Tuition Insurance Necessary?
Tuition insurance has its benefits. Families have an advantage because it lessens the blow of a traumatic event and some schools benefit because it can protect their revenues.

The plan works by transferring risk to the insurance company, and the policy pays out if the college student becomes too sick to complete the semester. This can be a real comfort to large families that may have children close in age who are attending or will attend college.

However, this type of insurance is certainly not a necessity. People drop out of school for a number of reasons, such as a family emergency, drug and alcohol abuse or academic problems - from a risk perspective, it is relatively unlikely that most young, healthy students will fall seriously ill.

Parents should be aware that some colleges already have policies in place to reimburse tuition if the student withdraws by a certain deadline. In addition, colleges will often return some portion of a student's tuition if he or she suddenly withdraws, particularly if this happens in the first six weeks of school. Some secondary and elementary schools may not offer this type of reimbursement option.

Weighing the Options
Other options are available to families and students. Parents may want to consider the following:

  • Make sure the student has health insurance.
  • It may not make sense to participate in the plan if the student is receiving a large amount of financial aid.
  • Get a power of attorney for the college student, which provides the ability to take over the child's health and finances if the student becomes incapacitated.

Tuition insurance is intended to address the problems encountered with withdrawals and dismissals and is offered on an optional basis at participating schools. Families, especially those with college students, need to determine the financial feasibility of the plan by considering the student's health. Families and students can find out more about tuition insurance or whether their school even offers it by visiting the school's bursar or financial aid office.

Related Articles
  1. Options & Futures

    Reduce Tuition With A Work-Incentive Program

    Find out how to gain valuable work experience and cut the cost of your education.
  2. Personal Finance

    Tuition Reimbursement - An Employment Perk

    Boost your value in the job market at your employer's expense.
  3. Options & Futures

    Should Parents Pay For College?

    When federal student loan resources are exhausted, parents and students face tough decisions on how to pay.
  4. Personal Finance

    Top Universities for Getting an MBA Abroad

    Going abroad for an MBA can add cachet when it comes time to get a job.
  5. Credit & Loans

    10 Ways Student Debt Can Destroy Your Life

    If you're getting a student loan, think critically about how you will manage your loan. Student debt could have a profound negative impact on your life.
  6. Insurance

    Explaining Indemnity Insurance

    Indemnity insurance is an insurance policy that protects business owners and employees from losses due to failure to deliver expected services.
  7. Budgeting

    Top 10 Ways College Students Can Save Money

    College costs are soaring, but fortunately, there are several ways for college students to save money - and some are quite painless.
  8. Personal Finance

    8 Ways to Find Cheap Textbooks

    Textbooks are so expensive. What are the tricks to find cheaper books?
  9. Credit & Loans

    Why Ignoring Your 529 Plan Could Cost You Big

    Saving for your kids' college tuition can be difficult. Here's how a 529 plan can help and how you, too, can help your 529 plan.
  10. Insurance

    Designer Clothes: Why You Need Special Insurance

    You spend a lot of money on couture creations. Shouldn't they be protected from damage?
  1. Student loans, federal and private: what's the difference?

    The cost of a college education now rivals many home prices, making student loans a huge debt that many young people face ... Read Full Answer >>
  2. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  3. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  4. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  5. What are the best MBA programs for corporate finance?

    Opinions vary based on which publications you consult, but the best MBA programs for a career in corporate finance are at ... Read Full Answer >>
  6. What are the major categories of financial institutions and what are their primary ...

    In today's financial services marketplace, a financial institution exists to provide a wide variety of deposit, lending and ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!