By Dave Carpenter, AP Personal Finance Writer
CHICAGO (AP) — You insure your car, your home, your health, your life. Why not your child's expensive schooling?
Like travel insurance or earthquake insurance, tuition refund insurance — a means of getting your money back if a student doesn't make it through the school year due to an emergency — isn't for everyone. The cost could be significant over four years, and it typically covers only withdrawals for medical reasons at the college level.
But it can be a safeguard to make sure you don't lose thousands if your child has to drop out of college because of an unanticipated ailment or accident. It's also an option for parents paying for private K-12 schools who may be concerned about their jobs being relocated or cut.
Tuition insurance is not generally recommended for college students unless the student has a serious illness that could force withdrawal from school.
"Most people don't need it," said Mark Kantrowitz, an expert on student loans who publishes the Web site Finaid.org. "What it's primarily providing is peace of mind."
That doesn't mean there aren't instances where it's appropriate to at least consider it. The comfort factor alone may be enough for some to deem it a worthwhile investment.
Diane and Larry Honda of Fresno, Calif., bought tuition refund insurance when their daughter headed off to the University of Southern California two years ago. Marissa didn't have any health issues. But with the Hondas on the hook for the full tuition without any financial aid, the thought of potentially losing $19,000 a semester was "just too daunting" without the extra insurance which cost roughly $150 a year, her mom said.
"Now that she is a junior and we all know the routine of school, we canceled it," said Diane, 55, a high school journalism teacher. "It was not based on any kind of sound financial judgment but rather the decision that we would just go ahead and take the hit if something happened to her."
Here are some questions and answers about tuition insurance:
Q: What does it cover?
A: Refunds for college tuition normally are available only when a student withdraws for documented medical reasons or due to the death of the student, parent or guardian. Some policies may allow the purchase of a rider that includes a parent being laid off.
The coverage is generally broader at the private elementary and secondary school level, where fewer regulations apply and there is generally no federal financial aid. Conditions for reimbursement there might also include a parent's job loss or even a student's dismissal or suspension from school.
Q: Who offers it?
A: Policies generally are sold to families by participating colleges or universities through one of two providers.
A.W.G. Dewar Inc. of Quincy, Mass., provides customized tuition refund plans to about 200 U.S. colleges and universities — primarily those with the highest costs — and 1,000 private elementary and secondary schools. Its plans are underwritten by OneBeacon Insurance Group of Canton, Mass.
Education Insurance Plans of Newport, R.I., provides tuition protection through schools via underwriter Markel Insurance Co., including for college students for the last three years. And its TuitionProtect.com, administered by Tampa, Fla.-based Coordinated Benefits Plans LLC, is the only individual or non school-sponsored plan available directly to families.
No college yet offers its own coverage despite some talk that that might be appropriate, according to Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
Q: How much does it cost?
A: Typically 1% to 3% of the face value of the coverage per year, ranging from $50 to $500 per semester depending on the college's costs and claim history. But it can vary widely by school and by insurance plan.
Dewar says its base cost is 1% of the annual cost of tuition, or tuition plus room and board — the customer's option.
Q: How established is this type of insurance?
A: Dewar brought the concept to the United States from England in the 1930s, applying it at independent schools from kindergarten through 12th grade. It began offering it at about a dozen colleges in 1986 to meet demand from parents who wanted the same protection that their children had in prep school.
Some experts say it's becoming more accepted amid soaring tuition costs and increased anxiety about financial and job circumstances. But tuition insurance remains little-known and there's no evidence of a boom in the business.
The privately held insurers don't disclose a lot of sales or other numbers publicly. Dewar's president Dana Tufts says Dewar has seen its tuition insurance numbers decline slightly in the last couple of years as consumers cut optional expenditures during the recession. David Galvin, principal of Education Insurance Plans, says interest in college tuition insurance is picking up a little and he is getting calls from parents of students who are studying abroad, particularly amid the risk for H1N1, also known as swine flu.
Q: Don't schools refund tuition anyway in the case of serious illness?
A: It depends on the school. Most colleges will refund all or part of the tuition if the student withdraws by a specified deadline within a few weeks into the semester. But it varies. Numerous colleges return only part of your tuition if your child withdraws for mental health or emotional reasons, for example.
Q: Who should get it?
A: You may want to think about it if you are paying all the costs at an expensive school without financial aid, which tends to be the case with boarding schools and other private K-12 institutions. In fact, some schools require it if you don't pay the full year's tuition up front.
At the college level, you might consider it if your child has a serious medical condition and you fear it will worsen under the added academic and social stress.
It's also something to look at if one parent works for an employer that is likely to make layoffs. But even then you may not need it in some situations. Talk to the school's financial aid office about whether it would take that into consideration.
"We can't object if someone wants to be very conservative and wants to have this additional coverage," said Nassirian. "But we don't think that (for college) it's usually necessary."
Q: What's the best way to determine whether a policy is appropriate?
A: First, check with your child's college and look into its refund policies. Then examine its tuition insurance plan and ask about exclusions, such as injuries from student protests and demonstrations and withdrawals due to the use of controlled substances or alcohol abuse. Also find out if it gives partial or full reimbursements.
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