Does Tuition Insurance Pay?

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Thousands of college students are sidelined with swine flu, a rotten way to start a semester that should be full of football games, parties and, oh yeah, learning.

Many sick students are being quarantined in their rooms or special dorms, and they should be back in class in a week or two. But some will lose the semester, and a lot of money for tuition, room and board.

Those students and their families may kick themselves for passing up a relatively cheap solution — tuition insurance.

Families saving for college might do well to include money for this insurance in their savings calculations.

Also called “tuition refund insurance,” these policies make up all or most of the difference between what the family has paid and what the college reimburses for students forced to withdraw for medical reasons. (Policies are also available for private K-12 schools, not only covering refunds for medical reasons but if a parent loses a job or the child must be withdrawn because a job transfer forces a move.)

College policies are typically offered as an option through the school, and cost between 1% and 2% of the amount covered.

Colleges typically make refunds on a sliding scale. Vassar College, for example, refunds 100% if a student withdraws for medical reasons before the semester begins, but it reimburses only 90% if the withdrawal occurs during the first week. After six weeks, there is no refund.

But Vassar offers a $410-per-year insurance policy that, in combination with Vassar’s refund policy, assures families will get back 80% of the loss.

At Kenyon College, the insurance program leaves no shortfall at all, leaving the family with a 100% refund even if the student doesn’t withdraw until after the fifth week, when the college refunds nothing.

Both programs are run by A.W.G. Dewar, Inc. which has specialized in this market since 1930. Its policies are issued by OneBeacon Insurance Group (Stock Qutoe: OB).

Many college aid experts argue that tuition insurance is unnecessary, since college-age students are generally healthy. Insurance makes little sense if the college has a generous refund policy of its own.

Still, tuition insurance is an option that students and their parents should consider, as a $400-per-year policy would seem cheap if the alternative were to lose tens of thousands. Many policies also cover accidents and study abroad.

In addition to considering cost, families should look carefully at what is covered. In many cases, withdrawals for psychological or emotional conditions get smaller refunds than ones for physical conditions.

Some policies also deny refunds for pre-existing conditions, which can be defined in various ways.

Like auto insurance or term life policies, tuition insurance pays off only if you have a claim. There’s no investment component as with whole life policies. But tuition insurance is relatively inexpensive, and for many families well worth the peace of mind.

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