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Do college students buy term life insurance?

May 22, 2012

A press release issued yesterday by Aetna said that the company will begin offering group term life insurance with its student health insurance plans. Aetna is one of the two largest issuers of student health insurance policies that have been under political pressure since the 2010 federal health reform law was passed. The student health policies do not meet minimal coverage standards under the new law and so insurers are looking for new ways to replace revenue that may be lost by 2014 when the new law becomes effective and insurers must offer the new (less profitable) policies.

An Aetna spokesman said:

"We speak directly with our student members, and we consistently hear from college students of all ages that financial planning is a priority for themselves and their families,"

That has not been my experience. I’ve found it challenging to convince many college students who call the OnlineAdviser line that they should have anything other that what covers the appointment they already have scheduled. Most seem to expect that insurance will pay them more in benefits than they pay in premiums. This is far from the truth in student insurance plans and is certainly not even a reasonable expectation with life insurance. Student medical insurance historically has the lowest benefits expense ratio compared to other types of health insurance and reportedly more than 98% of group term life insurance policies expire worthless.

A smarter approach would be for student and parent to join efforts to purchase a permanent cash value insurance that would be worth more than the premium expense by the time the student typically starts a family.

WSJ Professional Article –

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