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.

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