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Congratulations, graduates! As you celebrate your accomplishments and prepare for your future, let’s talk about the private student loans you’ve taken out.
Did you know that private student loans are not canceled when you die? This means that your estate will inherit your private student loan debt if you don’t pay it off. An estate is made up of property, debts and assets left by a person upon death, and it becomes the responsibility of the deceased’s heirs.
If you have private student loans, consider life insurance to pay off your debt when you die so your estate doesn’t inherit it.
Private student loans are not forgiven, even if you die
In 2019, 69% of college graduates graduated with federal and private student loan debt, according to Student loan hero. Federal student loans offer a more generous repayment and forbearance plan. During the Coronavirus pandemic, federal student loans were suspended and collections were halted on delinquent loans.
Private student loans are privately owned, generally more expensive, and do not have the same generous repayment or deferral options as federal loans.
In addition, federal student loans are paid on the death of the borrower. Unfortunately, if you die, private student loans become part of your estate debt. It is at the discretion of the private lender to pay off your debt, depending on the Student Loan Assistance Program.
Life insurance protects your estate against private student loan debt
According to Silvia tergas, a Prudential financial planner, “Ultimately, life insurance is risk management” to deal with “premature death, loss of income due to illness or disability.”
She recommends life insurance to cover private student loans so that if your parents co-signed the loan, they won’t end up with debt if you die. To find out how much life insurance you need, consult a financial professional, but online life insurance calculators can help you give you estimates as a starting point.
Even if your parents weren’t co-signers, you don’t want the repercussions of a debt left to your estate to be left behind, especially if you’re married.
What is life insurance?
Life insurance is a contract between you and the life insurance company. You pay premiums (monthly or yearly) for a payment your living parents will receive, called a death benefit. In the event of death, the insurance company pays the death benefit to the beneficiary of your choice.
“If you don’t come home and someone depends on your income to live, you need life insurance,” Mark Williams, CEO of International brokers, Insider said.
The best life insurance for you depends on your budget as well as your financial goals. There are two main types of life insurance policies: permanent life insurance and term life insurance.
To maximize the benefits of life insurance, it is wise to include a financial advisor, accountant, and estate lawyer in your decision-making process to ensure you have the right coverage that adapts to your changing circumstances. your life.
Your life insurance needs change with age, and you’ll need to consider children, marriage, divorce, retirement, and caring for aging parents. By consulting with the three experts, you can ensure you have the right coverage you need for your goals and for life changes on the road.
Ronda Lee is Associate Insurance Editor at Personal Finance Insider and covers consumer life, auto, home and tenant insurance. She is also a licensed lawyer who has practiced insurance litigation and defense.