It’s no secret that more and more Americans, especially younger Americans, are being saddled with student loans. As the cost of tuition and public and private universities increase at record speeds and wages remain relatively stagnant, most higher learners are being forced to take out loans to pay for their continued education.
Now, this blog post isn’t a critique one way or another about student loans, whether they should be forgiven, what the interest rates should be or anything like that.
What this blog post is about, however, is whether those student loans are forgiven when you die and whether your life insurance death benefit will be reduced to cover the outstanding loan balances.
First and foremost it’s important to remember that (just like every person) every life insurance policy and company is different. The contracts have different features and benefits associated with them so before you sign up for coverage with your Dallas insurance agent, you ask them every single question you can possibly think of.
As a general rule, though, life insurance is a contract directly between the policy owner (not necessarily the insured) and the insurance company. When you die the beneficiary that is listed in your policy receives the death benefit minus any deductions for unpaid premiums or loans if it is a permanent policy. Any debt that you might have, including student loans, generally isn’t subject to being garnished from life insurance proceeds as those debts become part of your estate and are settled through the probate process. And if you’ve taken out federal student loans those are typically forgiven at the time of death.
So, no, generally speaking student loan debt doesn’t reduce the amount of the death benefit when you die.
What you should think about, however, is if you have student loans that you acquired with the help of a cosigner. Specifically private student loans, cosigners may be required to continue paying the debt on those loans even if you are no longer living. For parents and grandparents who plan on cosigning for their junior’s students, it’s not a bad idea to take out a small life insurance policy on him to make sure if something tragic happens that you are not responsible for a debt that, while technically is yours, isn’t one you were prepared to take on.
Even more than auto, home and renters insurance, life insurance can become incredibly complicated. Your Dallas insurance agency, the Lewis Family Insurance Group, has the knowledge and experience to cut through the clutter and simplify the topic so you can make an informed decision.