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Tuition Insurance

Last Updated 6/24/2020

Issue: Tuition Insurance, also known as tuition refund insurance, is insurance that provides coverage if a student faces circumstances where they need to suddenly withdraw from school, most often for medical or mental health reasons, although there are policies available that offer broader coverage. 
Tuition insurance can be obtained from an insurance provider, educational institutions, or even as part of a student loan. These policies will refund some or all of the tuition expenses and typically other incidentals, like room and board, if the student withdrawals from school for a covered reason.

Background: Simply put, tuition insurance offers a way for college students to recover the cost of paid tuition, fees, room, board, and other eligible education expenses in the event the student unexpectedly withdraws from school, typically due to a serious physical or mental illness. A recent College Board report noted a moderate college budget for an in-state public college for the 2019-2020 academic year averaged $26,590. A moderate budget at a private college averaged $53,980. Most universities have their own refund policy on a declining schedule, offering some level of reimbursement if a student withdraws within the first few weeks of the semester. However, if a student drops out late in the semester, they may only get a small fraction of their tuition or nothing at all. 

Although the concept of tuition insurance seems straightforward, every tuition refund plan has its own rules and limitations for coverage. Overall reimbursement depends on the type of policy purchased and the reason for withdrawal. Tuition insurance policies typically require the circumstances for withdrawal are unforeseen. Most tuition insurance plans cover students who have a life-changing illness or accident and are unable to continue with their education. Pre-existing medical conditions may also not be included.  According to Allianz, a provider of tuition insurance, depending on the type of plan, students can receive some tuition reimbursement for the following reasons:

  • Illness or injury
  • In the case of death
  • Mental or psychological disorders (such as severe depression, anxiety, etc.)
  • Any unexpected reason

However, not all cases are fully covered in tuition refund plans. Tuition insurance carrier GradGuard only reimburses when a student withdraws because of an illness or injury, or if a student passes away. Numerous tuition insurance policies also minimize the benefit if the student leaves school because of a mental illness. Allianz has three different levels of plans. These plans all cover current medical conditions, but are all paid out differently depending on the type of claim. For example, there is a different payout for a student who withdraws because of an injury or illness, versus if the student had a mental health disorder. Universities are also now starting to offer third-party tuition insurance in partnership with Allianz.

Epidemics and pandemics are excluded from tuition insurance. However, some insurers have been flexible with this policy during the coronavirus pandemic and have covered students who needed to withdraw during the Spring 2020 semester due to contracting the virus.  Students would not be reimbursed for leaving school due to fear of falling ill with the virus.

On average, tuition insurance costs about 1% of the total tuition cost.  Also, the amount of coverage purchased is flexible, depending on individual needs and circumstances.  For example, students could choose to insure a portion of their tuition or the entire amount for the semester.  A policy typically covers the length of the current academic semester and needs to renewed each subsequent semester for coverage to remain in effect.

Additional Resources

Tuition Insurance Rescues Lost College Deposits and Payments (June 2020, Forbes)

Should You Buy College Tuition Insurance? 
July 2018, Consumer Reports

Why Tuition Insurance is Necessary 
February 2018, Private School Review

 

 

Contacts

Media queries should be directed to the NAIC Communications Division at 816-783-8909 or news@naic.org.

NAIC Center for Insurance Policy and Research (CIPR)

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