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Overwhelming Student Debt Has Parents Getting Life Insurance Policies on Their Kids

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weight of debt

When my parents first announced at Thanksgiving that they were taking out a life insurance policy on me, I was taken aback and slightly offended. In fact, I thought it was a cruel joke.

Why would they need to do such a thing? I’m only 27. The mere thought of it was grim.

But they did have a reason: my student loan debt. Since they co-signed with me for the loans, they’d be left with the debt if I ever—god forbid—died.

I asked several friends whether they’d heard of such a preposterous idea, and one friend told me his parents, too, took out life insurance on him immediately following his college graduation.

This is apparently becoming a trend—a disturbing one

An increasing number of parents are taking out life insurance policies on their college graduates in an effort to avoid being left tens of thousands of dollars in debt if their child dies and can’t repay the loans, The Financial Times reports. With unemployment above seven percent and many baby boomers having already tapped their retirement savings just to weather the difficult economic times, the last burden a grieving parent needs is a loan company hounding them to make payments.

We all know student loan debt is nearing bubble-bursting levels and ready to swallow students and parents. In 2012, outstanding student loan debt exceeded a breathtaking $1 trillion, surpassing other types of debt including credit cards and car loans to become the second largest source of consumer debt behind home mortgages.

To break that down into a figure we can actually comprehend, a recent U.S. News & World Report found that 2011 graduates shouldered an average of $26,220 in student loan debt. My outstanding school loan debt from undergraduate and graduate school is double the average, but I still didn’t think it was enough for my parents to take out the minimum $100,000 life insurance policy on me.

At my parents’ request, when I got the phone call from the life insurance company several weeks ago, I reluctantly obliged and went through the 30-minute verbal questionnaire. The woman on the other end of the phone told me she was surprised to hear how healthy I am.

So I asked her if this was the first time she’d gone through a policy with a young, healthy individual relating to student debt. She said it wasn’t.

How much does this sort of policy cost? MetLife offers a non-smoking individual under 40 with student loans a 10-year, $500,000 life insurance policy for about $10 per month.

What do you think? Have your parents considered taking out a life insurance policy on you to protect them from your student debt? Would you support the idea?

Jennifer De Paul is a tax reporter for The Bond Buyer in Washington, D.C. She hails from New Hampshire and loves to cook and travel. You can follow her on Twitter @BondBuyerJen.

Brazen powers real-time, online events for leading organizations around the world. Our lifestyle and career blog, Brazen Life, offers fun and edgy ideas for ambitious professionals navigating the changing world of work.

  • http://www.kmlogan.com/ KM Logan

    Personally, this seems really wise on the part of your parents. Student loans aren’t protected under bankruptcy I definitely think more parents should be considering this.

  • JGR

    Offended? That’s funny to me. I have a 19 year old and I have two whole life policies on him. Should something happen to him, there’s no problem with debt. When he’s graduated and ready for life? He has two policies that are basically like a ROTH IRA or a savings account – oh, there’s a bonus. A death benefit. Oh, and he has rates and choices locked in with his great health (youth). When you are 44 with two kids, you’ll get it. You’ll wish your parents had bought a permanent policy vs a term policy. But, they’re very wise to cover their potential debt. You should be saying thanks to them for co-signing in my opinion vs being offended. Oh, and I’m an insurance agent ;) http://www.planwithjoanne.com

    • hereatpsu

      “Oh and I am an insurance agent” pretty much sums it up well. Now, let us see how the insurance business works. A for profit model, the collects premiums and pays out a small percentage of claims by dipping into the pool and using the rest to pay hefty salaries, bonuses and dividends to those who are running the business.

      • http://www.flickr.com/photos/stevebenson/ Stephen Benson

        It’s called a Ponzi scheme. Much like fractional reserve banking..

  • NAH

    I am actually worried about the debt I will leave behind if I die.as My mother (and co-signer) already has a policy to pay for a funeral if something happens to me. I think I am going to ask my mother to take out a bigger one or up the existing one.

  • Rob

    I agree with Joanne. One of the best things your parents could have done when you were very young is purchase PERMANENT life insurance that develops a tax-free CASH VALUE that can eventually be borrowed against to pay for college. After that loan to the family from the family’s own “bank” has been paid off, the cash value can be used again for a down payment on a house. Or for a wedding. Or to start a small business. Using life insurance for LIFE BENEFITS is very wise.

  • http://www.facebook.com/jason.shinn.71 Jason Shinn

    Your offense at the idea is cute. Money and death are practical realities of life, always have been and always will be. The sooner you come to grips with that, the more sense you’ll be able to make of this world we live in.

    Read up on life insurance, it’s there to protect the people we love. If you stop thinking about it as a yucky thing that’s really just for old people but instead take it as a practical defense against having to both mourn a child lost too young *and* immediately shoulder *tons* of debt that they graciously cosigned for you, you’ll start to understand.

    This is not a result of your parents reducing you to your financial impact on their life, it’s a result of them facing their own mortality, planning for its impact on you, and realizing that your non-invincibility should be planned for as well. And they’re doing it for you, since you apparently think you’re not the “death type”.

    You should go thank them.

    • alan borky

      Jason insurance companies don’t insure out the goodness of their heart. They don’t even gamble as the rest of us do whenever we take out insurance we might never’ve needed to take out insurance in the first place or even if we did the insurance companies won’t find a reason not to pay out as’s happened to various family members and friends of mine on a more and more frequent basis over the decades.

      In fact the insurance companies don’t just do everything they can to avoid paying out at all by finding various ways to encourage their staff through bullying emoluments promotion or the sack but their actuaries design the whole process to guarantee whatever happens the insurers make significant profits.

      But even that’s not necessarily bad if peace of mind at least’s confered.

      The problem is though they’re always looking not only to increase their profit margins but for new ways to induce society to take out more and more insurance on more and more categories and so they systematically go out their way through various media manipulatory means to generate endless new anxiety memes to terrorise the world to their financial advantage.

      So not only do we have a situation in Britain where schools basically ban all sports and physically related schoolyard games to bring down their insurance costs but pointy objects like triangular slices of pizza’re banned for fear of them becoming weaponised raising the insurance costs still more but they’ve even been phoning up people and saying we hear you’ve just bought a new fridge etc don’t you think you should take out insurance on not being able to pay the costs of the other insurance you bought in case the fridge breaks down or you get the sack or it topples on your gran’ma etc etc etc.

      I personally watched an insurance company tell an old guy they were hawking his car insurance through the roof and why it was financially impossible for them to offer him anything lower only to covertly monitor him getting a better offer over the internet and phone him up even as he was giving his details to the other company and make a substantially reduced counter offer and this approach directed at an individual who’d never made a single claim all his driving life.

      So insurance companies aren’t Father Christmases who do what they do out of love.

      In fact all these banking catastrophes resulting from “misselling” pension plans mortgages subprime mortages and aboveall credit default swaps all resulted from the banks insuring these things in such a way they gained from them failing.

      So no offense Jason but I find your financial perspective even more cute and I wish you luck when what’s currently happening in Cyprus starts happening to your bank and your insurance company.

      • http://www.facebook.com/jason.shinn.71 Jason Shinn

        Watch out! That bathwater has a baby in it!

  • fuqdisqus

    If things get bad . . . the parents can make it look like an “accident.”

    Yeah, that’s the ticket.

  • Gerald Bakes

    Student loans are now the worst performing debt class and now the new sub-prime debt bubble that’s about to burst, overtaking credit card debt – professors call to immediatel​y cease and desist the program?

    Have you heard the outcry and massive protest marches by university professors and administrators to immediately stop and abolish the student loan program in the USA that is DESTROYING hundreds of thousands of their students financially and continues unabated?
    Clueless 18 year olds are given huge loans, permanently nailed to them for life with no recourse to default, that would never be given to them under ANY other circumstances.
    What? ….there is no outcry from university professors and administrators? …..not even…..anything? to save the financial future of hundreds of thousands of kids? ? No demands from universities to immediately cease and desist the program?
    Oh, they’re keeping quiet and sacrificing their students futures for their own salaries, pension security and fancy offices, bonuses and parties (oops, I mean ‘conferences’ so they can give each other awards for excellence)?

  • Adam Holtzberg

    Interest on interest on interest ad infinitum all for money that we brought into existence from thin air in the first place. Don’t you get it? Fractional Reserve Banking! The money you are paying back never existed until you agreed to borrow it. Ha ha. Oh, my boy, you gotta love it.

    PS Please pay more taxes this year to subsidize our brutal occupation of Palestine, and don’t forget to bomb Iran for us! We know they don’t have nukes and we do, but, winkedy-wink, who cares about such details. We say “bomb your brothers”, you (our Goy bitches) say “How Hard?”.

  • http://www.facebook.com/kathy.giles Kathy Giles

    As parents we made sure we had life insurance to provide for our son in case something happened to us. You are doing the same, making sure your parents won’t take an unexpected financial hit in the awful chance something should happen to you. We did the same for our son, it was not an easy decision; but simply a business decision.

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