Should I Buy Life Insurance To Pay Off Student Loans At My Death?
Student loan debt has topped $1 trillion, and is rapidly climbing. According to FinAid, total student loan debt is growing by $2,853.88 per second… That’s over $10 million per hour! Unfortunately, unscrupulous crooks are using the debt as a way to scare people into making bad financial decisions… Take the following story for example…
A friend recently came to me and was furious… She is in her late 20’s, middle income, with no spouse, significant other, or children. A life insurance salesmen approached her about buying a Whole Life Insurance policy. My friend knew enough to know that she doesn’t need life insurance right now, and politely turned down the salesmen. The salesmen was undeterred, and contacted my friends parents. He asked the father, “Did you know that if your daughter dies, you will have to pay off her student loans?” Terrified, the father quickly purchased a whole life insurance policy on his daughter to cover the amount of her substantial federally issued student loan debt.
So what’s wrong with this story? At death, your federally issued student loans disappear! That’s right… the government isn’t coming after your spouse, much less your parents, to pay off your student loans. So should you, or anyone else, have life insurance to pay off your federally issued student loans? No!
But what about private student loans? Well those a bit trickier, and you will need to check directly with your lender. Some of the major companies that issue private student loans, such as Sallie Mae and Wells Fargo, will forgive the loan at death, but smaller lenders may not. If your private student loans are not forgiven at death, consider consolidating them with a lender that will. Otherwise, a small term life insurance policy to cover the student loan balance may be appropriate. Note that some of these companies will even forgive student loans that have been co-signed.
When someone tries to scare you into buying a product, please seek a second opinion before buying. I know how hard it can be to get an objective second opinion, particularly in the world of personal finance. At Serenity Financial Consulting, we offer a free second opinion review service for situations just like this. And for non-personal finance related questions, there are plenty of honest service providers that will give you a free second opinion on anything you are looking at buying, from a used car to getting a new roof… don’t be afraid to ask for help.
So what do you think? Has a salesman ever flat out lied to you, only for you to discover later on it wasn’t true? I would love to hear your story.