As Chuck Jaffe of MarketWatch.com’s “Stupid Investment of the Week” pointed out on August 6, sometimes the best insurance advice is in what not to buy. Jaffe’s article for the day looks at a highly specialized form of coverage, and one into which worried parents will all too easily buy — tuition insurance.
I’ll hasten to offer the same caveat Jaffe offers. In fact, I’ll quote him.”Stupid Investment of the Week highlights the conditions and characteristics that make an investment less than ideal for the average consumer, and is written in the hope that spotlighting trouble in one case will make easier to sidestep trouble elsewhere. While obviously not a purchase recommendation, neither is the column intended as an automatic sell signal; someone who has purchased tuition insurance may get some peace of mind from the coverage, even if it’s not particularly sensible or cost-effective.”
That being said, it’s hard to argue with the position that this type of specialty policy is just unnecessary coverage. The idea is to provide a degree of refund for tuition, fees, room, board, and other covered expenses when a full-time college student unexpectedly withdraws from school. Sounds like a great idea, however. . .
Most colleges will actually reimburse all or a very large chunk of tuition if students withdraw by a certain date. Beyond that date, the refund works on a prorated scale. That alone makes the coverage unnecessary because it’s redundant.
Plus, these policies have some of the finest fine print you’ll ever want to see. Drop out because you get sick? You get your money back. Drop out for a mental health reason? You get 75% of your money back. Voluntary withdrawal? — You’re just not happy. — Not covered in pretty much all cases. Some policies do allow for homesickness as a viable reason to leave, but don’t expect to get more than 60% of the amount of your tuition back with the coverage — in fact, expect less.
To get a full sense of the overlapping, convoluted, and often contradictory nature of tuition insurance, read Jaffe’s column. Bottom line, there are better life, medical, homeowners, and rental policies to protect your college age child and some level of tuition refund is standard operating procedure at colleges with or without a special insurance policy.