Drop-Out Insurance

People complain about car insurance, worry about health insurance and debate the need for life insurance, but there isn't much talk about tuition insurance.

People complain about car insurance, worry about health insurance and debate the need for life insurance, but there isn’t much talk about tuition insurance.

It might be because it’s perceived as a sunk cost; because colleges often refund some percentage of tuition until the midpoint of the semester; or because it’s so rare for people in their late teens or early 20s to contract debilitating illnesses. Or maybe because policies usually don’t refund tuition for students who drop out to “find” themselves or who get kicked out for drinking or bad grades. But the idea of paying a bit extra to ensure that a student and his family get the bulk of what they’ve paid for a semester has never quite caught on.

The market leader — and virtually only player — is Massachusetts-based A.W.G. Dewar, which offers insurance policies to students and their families at 180 U.S. colleges and universities, as well as at close to a thousand private primary and secondary schools.

For a few hundred dollars a year, Dewar promises to refund most or all of a semester’s costs that aren’t refunded by the institution if the student withdraws for well-documented medical reasons. “Families,” says Dana Tufts, the company’s president, “are interested in peace of mind, in having this option available especially as tuitions have increased substantially over the years.”

But because Dewar has chosen to offer policies at a limited number of “institutions where this is likely to work” (which, looking at the roster of colleges the company works with, generally means elite, expensive and mainly residential) as Tufts puts it, other companies are now trying to move in to reach a larger market of tuition payers. The latest is Markel Insurance, which is working with several regional and national brokers in an attempt to cater to what it sees as an unserved population: people paying tuitions to colleges and universities that don’t work with Dewar (or even those that do).

Markel underwrites policies that are marketed by, among others, Niagara National Inc., Educational Insurance Plans and Next Generation Insurance Group. David Galvin, president of Educational Insurance Plans, says he began offering the policies “because there wasn’t anything else out there for parents or students at colleges that aren’t part of Dewar’s program.”

He adds: “Some parents see risk. You know, a college education is expensive and they want to feel protected in case the student has to withdraw.”

But Tufts says he isn’t too concerned by Markel’s foray into tuition insurance. “Every few years, someone will file with states under a ‘me too’ policy,” but “competitors come and go.” Dewar is unique, he argues, “in working exclusively with educational institutions and families, and truly having their interests at heart.”

Dewar only sells policies through colleges – and not directly to parents – because “we like the control aspect of having the institution involved,” Tufts says. Colleges maintain official enrollment records and have their own repayment policies that make it easier for the company to verify claims and pay them, but institutions don’t get a cut of the premiums paid to Dewar.

The Dewar policy offered at Occidental College in Los Angeles offers 75 percent repayment beginning at day 11 of the term (when, without insurance the college would refund only 70 percent). Increasingly more of that 75 percent is covered by the policy as the semester progresses. The college offers less and less of a refund over time, and none at all following the 25th day of classes – when the insurance policy still pays 75 percent.

Markel’s policies offer 100 percent coverage for medical withdrawals or withdrawals as a result of the death of a tuition payer and 75 percent refunds for withdrawals “due to emotional, nervous or mental disorders.” The company’s policies also include optional coverage for 75 percent refunds for academic dismissals and 60 percent for voluntary withdrawals.

Almost all coverage from Markel and Dewar is less robust for mental health withdrawals than it is for physical health withdrawals. But, in Vermont, where state law mandates equal coverage for physical and mental health, a state agency has just ruled that tuition insurance must equally cover both reasons for withdrawal. The decision comes after a complaint from a former student at the University of Vermont, which offers tuition insurance through Dewar. Beginning this fall, the university’s policies will offer an 80 percent refund for either kind of withdrawal.

Most Dewar policies cover preexisting conditions, and Markel’s policies generally waive preexisting conditions after six months of membership.

Brokers offering Markel’s plans sell primarily to individuals, but have also followed Dewar’s lead in offering policies through institutions. This fall, Niagara offered a Markel policy to Elmira College students and their families for $503 annually. Tuition, room and board there totaled about $45,000.

Markel is also selling its policies through affinity groups like College Parents of America, which is in the process of rebranding itself to be more like AARP or AAA, where “insurance is a compelling reason to join,” says James Boyle, College Parents’ president.

Continue reading this article on Inside Higher Ed.