Should our college kid have life insurance?

  @Money June 6, 2013: 12:25 PM ET
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NEW YORK (Money Magazine)

Should our daughter in college have a term life policy, with us as beneficiaries? -- Name withheld, Superior, Colo.

Insurance makes sense only if her death would create financial woes -- say, if you had to pay debts incurred for her schooling.

The sort-of-good news: Federal Stafford loans, the chief type of college debt, are forgiven when a student dies, explains Mark Kantrowitz, publisher of Edvisors.com, a website about planning and paying for college. So are Parent PLUS loans.

Only one in six private student lenders, though, automatically forgives a loan, he says; look for a lender's forgiveness policy in its loan contract. As with PLUS loans, a forgiven balance is taxed as income.

Related: Saving for college

If you borrowed against your home to pay for school, expecting your daughter to pay you back, you'd also be on the hook, of course.

Should you take out insurance, your daughter's age should make it cheap. Expect to pay about $100 annually for a 10-year $50,000 policy from a top-rated company. To top of page

Got a question for Ask the Expert? Send it to AskTheExpert@moneymail.com.


What a loan costs parents when a student dies
Federal debt is forgiven if a student dies, but that's not the case for all private loans and other borrowing by parents.
Financial impact of a $25,000 loan
Home-equity loan $33,000
Tax bill on forgiven Parent PLUS loan $6,250
Stafford taken out by student $0
Notes: Liability for home-equity loan assumes 6% rate, 10-year term; for PLUS loan, assumes 25% tax bracket. Sources: Mark Kantrowitz, MONEY calculations
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