Tuition Insurance Sounds Great, Unless It Doesn’t Cover Covid-19

(Bloomberg Businessweek) — With Covid-19 infections spreading on many college campuses, parents are naturally anxious about their kids’ health. But there’s a financial worry, too. Marcy Fischer’s daughter attends Emory University in Atlanta, where covering her off-campus lease, plus tuition, would come to about $30,000 for one semester. “You know, if they just get sent home from school and go virtual, that’s one thing,” says Fischer, who lives in Brookline, Mass. “But if they were to get sick and have to withdraw from university for the semester, we’d be out that money.”

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To cover that risk, Fischer bought an insurance policy. The plan, from Boston-based GradGuard, can cover unrefunded tuition expenses and other costs if the student is too sick to finish the semester. At a school such as Emory that’s teamed up with GradGuard to sell the plans—there are more than 350 such partnerships—up to $30,000 of coverage would cost about $300. The policies, which are underwritten by Allianz SE, are more expensive if purchased individually. They’re bought or renewed each semester and must be purchased before the first day of classes.

John Fees, chief executive officer of GradGuard, says demand has jumped in the past few months as the pandemic has made the financial risk of high college costs even more vivid. “Families are more aware than ever before of the risks of paying for college,” he says. But whether Covid-19 is a good reason to shell out thousands of extra dollars over the course of a student’s college career for insurance is a more complicated question, experts say.

For one thing, such policies typically require the circumstances for withdrawal to be unforeseen, says Loretta Worters, spokeswoman for the Insurance Information Institute, a trade group. The Covid outbreak began well before the current school year. “Epidemics and pandemics are typically excluded from tuition insurance,” she says.

How companies will cover Covid-related illnesses is a mixed bag. Liberty Mutual Insurance, another insurer offering tuition insurance, says it doesn’t cover Covid, while A.W.G. Dewar Inc., which offers plans via schools, says it’s treating it like other illnesses that might cause a student to withdraw.

In a coverage alert on its website, GradGuard notes that Covid claims are “not covered under most plans” because of the exceptions for epidemics and foreseeable events. But the company says it’s choosing to accommodate claims for students who completely withdraw from school due to becoming ill from Covid. Fees says the company is monitoring losses and expects to be able to continue paying such claims, but that in future semesters it may limit this to policies offered through participating schools.

Financial planner Andrew Komarow, co-founder of Tenpath Financial Group, recommends being cautious before buying a policy. Parents should bear in mind that coverage generally only kicks in if the student is too sick to be in school at all. While Covid infections are serious—and pose a risk that a student will spread it in the community—younger people tend to have milder symptoms. So they may end up continuing school remotely. “That doesn’t mean school’s canceled,” Komarow says.

Michael Kovalev, owner of Kovalev Insurance Agency Inc., calls tuition insurance a niche product that some people may find useful. “But I also don’t think the price tag is small,” he says.

To be sure, just because a financial risk is comparatively low doesn’t necessarily mean it’s not worth insuring—especially if the potential cost could be devastating. In addition to Covid, tuition insurance can cover withdrawals due to other types of illness, including mental health conditions in some circumstances. “It’s certainly an affordable alternative for families to protect what is often the second-largest investment in their lives,” Fees says. According to the College Board, full-time students at private four-year colleges pay, after aid, an average $27,400 per year including room and board. In-state students at public four-year colleges pay $15,400.

Fees stresses that tuition insurance won’t cover costs if a school ends in-person classes and tells students to continue classes virtually—a situation that leaves many kids and their parents wondering if it wouldn’t be better to take a gap year. “It’s a medical withdrawal, not a change in how schools teach,” he says of the coverage. “It’s not a business interruption insurance.” Nor does it cover costs for students who are suspended or expelled for violating campus rules to prevent Covid’s spread. In September, Northeastern University in Boston dismissed 11 students who had gathered in a room at a hotel being used for temporary student housing. They weren’t refunded $36,000 in tuition.

“There’s so many reasons kids do drop out of school, although I would say the primary reason kids drop out of school is typically not because of an illness,” says Jane Klemmer, founder of Klemmer Educational Consulting, which counsels families on admissions and paying for college. “Once people start to read the small print of what’s covered and what’s not, that could be a deterrent,” she says of tuition insurance.

Whether it’s bad grades, a poor college fit, or just wanting to do something else, 19-year-olds have plenty of ways to disrupt families’ financial plans, and most of those ways can’t be covered by insurance. That’s something parents can consider along with the aid package when deciding if a particular school is within financial reach—can we still afford it if there’s a rough semester along the way? Now Covid and its many disruptions to campus life and learning have added a new variable.

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