Paying for private pre-K to 12 schooling or a college education is tough enough – but what if your child or student has to suddenly withdraw, costing you thousands of dollars in unused tuition funds?

One possible solution is tuition refund insurance. Tuition refund insurance, also known simply as tuition insurance, reduces or eliminates your losses in the event of a medical emergency or certain other setbacks resulting in early withdrawal from school. For more on the cost of college see: Pay for College Without Selling a Kidney.

The Plans

This insurance generally allows you to get some or all of your money back if your child leaves school partway through the year. There are two different types of plans with different rules for each.

One plan covers reimbursement of tuition and other costs for your child attending a private pre-K to 12 school and the other is for students at public or private colleges. Both plans are typically offered by third-party insurers.

The Pre-K to 12 Plan

This type of plan provides for a full or partial refund if your child who attends a private elementary or secondary school withdraws before the end of the school. Conditions covered, depending on the policy, can include illness, death, job loss, relocation or even expulsion.

Many private schools require that you purchase tuition refund insurance unless you pay for the entire year in advance. Even then, you may elect to purchase insurance to provide peace of mind in the event catastrophe occurs.

The cost of private school tuition insurance depends on the amount of coverage you select, but can be up to about 1% of the face value of education charges (typically tuition and room and board) for the period selected.

The College Plan

Although college tuition refund plans are available for just about any circumstance, most provide for refunds for medical or psychological reasons or the death of the student. Flunking out or being dismissed for disciplinary reasons is rarely covered.

You are not required to purchase college tuition refund insurance and policies are often written a semester at a time instead of for the entire year as is the case with pre-K to 12 policies.

As with private elementary and secondary school policies, costs vary based on coverage and the cost of attending the particular institution but can be up to 6% of covered tuition and related costs.

All tuition refund policies are filed with the state's insurance department in order to provide parents, schools and colleges with complete consumer protection.

Is Tuition Refund Insurance Necessary?

Tuition insurance has its benefits. Families gain through peace of mind and protection from unforeseen events. Schools gain by having their revenue stream protected.

The least expensive policies cover only medical emergencies or events that result in your child having to leave school before the end of the year or semester. That coverage is no help if there’s a job loss or other type of family emergency or unexpected relocation.

You should also know that most universities have a refund policy already in place. University refund policies typically only provide partial tuition reimbursement when a student leaves school within a stated time period – often the first 6 weeks of the school year. By contrast, private pre-K to 12 schools rarely offer tuition or room-and=board refunds.

Steps to Take

Before you decide to buy tuition refund insurance you should take the following steps:

  • Find out the school’s refund policy and take it into account to avoid paying for coverage you don’t need.
  • Make sure your student has health insurance. It’s rare for a young person to have to drop out of school for illness. It’s much more common for there to be a temporary setback that requires medical treatment.
  • It may not make sense to buy insurance if your student is receiving a large amount of financial aid. For more see: A Quick Guide to How FAFSA Loans Work
  • Obtain a power of attorney for your college-age student so you can take over health and finances if he becomes incapacitated.

The Bottom Line

For most people, tuition refund insurance isn’t necessary. If you feel the need to protect your tuition investment – or if your child has a history that might make him vulnerable to early withdrawal – such insurance might be worth considering.

Before you buy don’t forget to investigate the school’s existing refund policy. Then, shop around as you would with any other type of insurance for the best coverage at the best rate. As always, read the fine print for coverage limits and exclusions.

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