Putting your child through college is one of the best investments you can make.
But it’s a huge investment, and it’s getting bigger.
For the current academic year, the average cost of tuition and fees for private four-year colleges nationwide was $26,273, up 4.4 percent from the year before, according to the College Board, the educational organization that tracks college costs.
Tuition and fees at four-year public colleges for in-state students averaged $7,020, up 6.5 percent. For out-of-state students, tuition and fees averaged $18,548, up 6.2 percent.
So given the buckets of money parents are pouring into their children’s college educations, shouldn’t there be some protection for their investments?
A product called tuition refund insurance aims to fill that need by reimbursing you for the tuition you’ve already paid if your child has to withdraw from school for medical reasons.
The insurance has been around since 1930, according to A.W.G. Dewar Inc. in Quincy, Mass., which originated the insurance and is still the largest seller.
Dewar’s plan is aimed at families with children in private colleges or universities. The plan is offered through the schools, which includeSouthern Methodist University and Baylor University.
Similar plans are offered by Education Insurance Plans Inc. and MarkelInsurance Co. College Parents of America, a nationwide association that advocates for the interest of college parents, also recently started including tuition insurance as part of its membership.
“A medical withdrawal is, by nature, unpredictable, and college refund policies are, not surprisingly, set in stone,” said James Boyle, president of the College Parents of America.
“Having tuition insurance helps a family protect its finances when a collision occurs between unpredictable force [medical withdrawal] and immovable object [college refund policy].”
The insurance refunds up to 100 percent of tuition, room and board when a student withdraws at any time during a semester due to illness.
For example, if a school’s tuition is $10,000 a semester, and you’ve already paid that, Dewar’s plan would pay you $10,000 if your child withdraws from school.
If you’ve paid $8,000 of the $10,000 tuition, Dewar’s would pay the school the full $10,000, and the school would reimburse your $8,000.
The insurance also covers private and federally insured student loans.
Tuition refund insurance typically costs 1 percent to 5 percent of the face value of the coverage per year, financial aid expert Mark Kantrowitz said.
Before buying tuition insurance, read the terms of the policy carefully.
Some plans may include a pre-existing condition exclusion of six months to a year, said Kantrowitz, publisher of FinAid.org and FastWeb.com, college financing Web sites.
What’s more, refunds can be smaller if the student withdraws because of a psychological disorder.
“Since most 17- to 20-year-olds are healthy, tuition insurance is often not financially worthwhile, but does provide peace of mind,” Kantrowitz said.
“Because of the peace- of-mind benefit, tuition refund insurance is more likely to be of interest to parents whose children are attending more expensive colleges and who are paying most of the cost out of pocket.”
Most tuition refund insurance programs provide coverage for death of the student or a parent or guardian. But Kantrowitz said you’re better off buying that coverage elsewhere.
“For coverage in the event of the death of a parent or guardian, it is usually better to obtain term life and disability insurance coverage sufficient to replace the wage earner’s income, plus college costs,” he said.
Some plans, though not Dewar’s, also provide coverage in the event that the tuition payer becomes unemployed.
Kantrowitz also recommends taking a look at your school’s refund policy before buying.
“In all cases, the benefit is reduced by the amount of any refund from the school,” he said.
Protecting your investment in your child’s college education is a good move. Just make sure that what you’re buying is worth your money.