When my parents first announced at Thanksgiving that they were taking out a life insurance policy on me, I was taken aback and slightly offended. In fact, I thought it was a cruel joke.
Why would they need to do such a thing? I’m only 27. The mere thought of it was grim.
But they did have a reason: my student loan debt. Since they co-signed with me for the loans, they’d be left with the debt if I ever—god forbid—died.
I asked several friends whether they’d heard of such a preposterous idea, and one friend told me his parents, too, took out life insurance on him immediately following his college graduation.
This is apparently becoming a trend—a disturbing one
An increasing number of parents are taking out life insurance policies on their college graduates in an effort to avoid being left tens of thousands of dollars in debt if their child dies and can’t repay the loans, The Financial Times reports. With unemployment above seven percent and many baby boomers having already tapped their retirement savings just to weather the difficult economic times, the last burden a grieving parent needs is a loan company hounding them to make payments.
We all know student loan debt is nearing bubble-bursting levels and ready to swallow students and parents. In 2012, outstanding student loan debt exceeded a breathtaking $1 trillion, surpassing other types of debt including credit cards and car loans to become the second largest source of consumer debt behind home mortgages.
To break that down into a figure we can actually comprehend, a recent U.S. News & World Report found that 2011 graduates shouldered an average of $26,220 in student loan debt. My outstanding school loan debt from undergraduate and graduate school is double the average, but I still didn’t think it was enough for my parents to take out the minimum $100,000 life insurance policy on me.
At my parents’ request, when I got the phone call from the life insurance company several weeks ago, I reluctantly obliged and went through the 30-minute verbal questionnaire. The woman on the other end of the phone told me she was surprised to hear how healthy I am.
So I asked her if this was the first time she’d gone through a policy with a young, healthy individual relating to student debt. She said it wasn’t.
How much does this sort of policy cost? MetLife offers a non-smoking individual under 40 with student loans a 10-year, $500,000 life insurance policy for about $10 per month.
What do you think? Have your parents considered taking out a life insurance policy on you to protect them from your student debt? Would you support the idea?
Jennifer De Paul is a tax reporter for The Bond Buyer in Washington, D.C. She hails from New Hampshire and loves to cook and travel. You can follow her on Twitter @BondBuyerJen.