VCOM Mandatory Life Insurance

[Monty Python]

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I was reading the detailed information in my VCOM acceptance packet and noticed the mandatory life insurance requirement. Can someone explain how and why an educational institution can mandate life insurance coverage on it's students, even single ones with no dependents? It's not like you're required to name the school as the beneficiary.

 

[Assistant]

Well Trinityalumnus, I am not sure why they can do that but I do know that most schools do require that you have health insurance. Some schools even specify the max deductible amount you can have on your plan.

 

[Hillbilly]

It's a private school, they can pretty much mandate anything they want as long as it is not illegal.

 

[Doctor Bagel]

I was reading the detailed information in my VCOM acceptance packet and noticed the mandatory life insurance requirement. Can someone explain how and why an educational institution can mandate life insurance coverage on it's students, even single ones with no dependents? It's not like you're required to name the school as the beneficiary.

they must be concerned about your loans. they don't want their default rate to go up if you die. 🙂 of course, staffords are discharged, but i guess some of the private loans aren't hence their concern. some schools also require disability insurance for the same reason.

 

[cabinbuilder]

1.LECOM does life insurance for you so you can continue after you graduate but still have the student rate.

2. If you die while a student then there is money to pay the student loans (I think this is some governmental requirement)

3. Life Insurance is considered a "perk", name your parents as beneficiary if you have no family.

4. I think the school is required to carry it while you are on rotations in case of death or dismemberment.

That's about what I can think of currently but don't quote me as truth, just MHO.

 

[cyclegirl]

When I interviewed at VCOM they told me that they required life insurance because if you die while still having loans out that money can be used for your loans. VCOM requires a min of $25,000 for students with private loans out and a min of $10,000 for students who have only government loans. This is because if you die and still have gov loans out the gov does not require that your family pay those back. But if you have private loans out those companies will go after your family to get your loans paid the the life policy can be used to pay off your loans. So they way I understood it, the school is just looking out for your family.

 

[Darth Asclepius]

FYI, you can get cheap life insurance through the AMA ($20/year for $50,000). Unfortunately, the deadline for this year has passed, but you can look into it for next year. http://www.amainsure.com/index.cfm?ContentID=18

 

[ER_DO2B]

When I interviewed at VCOM they told me that they required life insurance because if you die while still having loans out that money can be used for your loans. VCOM requires a min of $25,000 for students with private loans out and a min of $10,000 for students who have only government loans. This is because if you die and still have gov loans out the gov does not require that your family pay those back. But if you have private loans out those companies will go after your family to get your loans paid the the life policy can be used to pay off your loans. So they way I understood it, the school is just looking out for your family.

That is exactly how it was explained during my interview session as well. Stafford loans are forgiven by the government in the event of death, however, private loans are not. If you look around, a $10-25k term life policy should be relatively inexpensive. The health insurance on the other hand...

 

[oldManDO2009]

I seriously doubt that if you died your family (as a single person) could be held responsible for you loans (as long as they were not a co-signer) because you are an adult and able to enter into a contract w/o your family's permission. I would think that if the loan was not listed as a payee then your next of kin would receive the pay out and the loan company would be out of luck....that is my non-lawyer opinion.....

 

[markdo3549]

I seriously doubt that if you died your family (as a single person) could be held responsible for you loans (as long as they were not a co-signer) because you are an adult and able to enter into a contract w/o your family's permission. I would think that if the loan was not listed as a payee then your next of kin would receive the pay out and the loan company would be out of luck....that is my non-lawyer opinion.....

I agree with old man. I do not see how a company can get money from you when you are dead! If you have a beneficiary designated, the beneficiary is not responsible for your debts. I might be wrong though.

 

[CaveatLector]

Oldman is absolutely correct. No one can go after your family to recover loan money in the event of your death. They can, however, go after cosigners obviously. When you enter into the loan contract it is between you and the "bank" and your family has nothing to do with it unless one or more cosigns. People, for some unknown and odd reason have this misconception that, upon a family member's death, other family members are responsible for debt or other obligations. Think of the absurdity of that proposition. The only time family is responsible for a debt NOT guaranteed by them is if it is a debt to a loan shark and the mob wants their money...haha.

As for life insurance, whomever's name it is in, as far as owner/beneficiary, gets the money. Life insurance does NOT become part of a decedent's estate unless it is owned by the decedent or his estate. It is the sole property of the beneficiary regardless of the amount of debt the decedent was in. AND, on top of all that it is NOT taxable as income by the IRS. Therefore, if your spouse has a $1 mil. policy and dies and you are the owner/beneficiary then you take that money tax free AND free of your spouse's debt (student loans or any other debt as well). That's the law folks. NOW, if you put yourself or your estate down as beneficiary then it WILL be used to pay YOUR debt.

So, my question would be whether the school also requires the policy be in YOUR name? Because if not then that whole loan payoff theory goes down the toilet...

 

[CaveatLector]

One more thing, let me qualify that before some get confused. The bank CAN go after you and your estate so whatever you own is subject to satisfying creditors, etc. before heirs. BUT, it must be what YOU OWN. They can't go after your family for what IT owns. And they can't get at life insurance proceeds that have a 3rd party as owner/beneficiary. In other words, make your family the owner/beneficiary of life insurance if they require you to carry it.

 

[scpod]

Therefore, if your spouse has a $1 mil. policy and dies and you are the beneficiary then you take that money tax free AND free of your spouse's debt (student loans or any other debt as well). That's the law folks. NOW, if you put yourself or your estate down as beneficiary then it WILL be used to pay YOUR debt.

The beneficiary doesn't have to pay income taxes, but if your total estate value is over the limit, the proceeds are subject to estate taxes.

 

[CaveatLector]

That's NOT true. Life insurance is NOT part of the estate if the beneficiary is not the estate or the decedent. It is NOT figured into the total estate value even if the insurance is worth $100,000,000.

 

[scpod]

That's NOT true. Life insurance is NOT part of the estate if the beneficiary is not the estate or the decedent. It is NOT figured into the total estate value even if the insurance is worth $100,000,000.

If you buy the policy yourself, then YOU own it regardless of who the beneficiary is and any amount over $675,000 (goes to 1 million in 2006) is subject to estate taxes. You can transfer the policy ownership to someone else (or a trust) and this would not apply, however, if you die within the next three years the estate taxes are still owed. A better method would be to cancel a large policy and use your tax-free gift amount to give to someone else to pay for a new policy. The IRS has more information. I would recommend you see an estate planner before taking out a $100,000,000 policy. You are in for a rude awakening.

 

[CaveatLector]

Yes, scpod is right as far as ownership. I re-read my post and it was not clearly written. Basically, as scpod, said you would need to either tansfer the policy to other family, etc. or put it in a trust to avoid it being part of your estate. What I was referring to was giving the policy to your loved one at the outset. You transfer it to the beneficiary at the moment you buy it. Doing that will avoid probate and it will be unreachable by your creditors. I definitely was not clear in my post and I appreciate scpod making things clear. The point is there are ways to avoid having that money go through probate and become part of your estate on your death.

Scpod points out the 3 year requirement to avoid what is known as a "fraudulent conveyance." If s/he says it applies in this situation I'll take his word for it because I don't know but the likelihood of a med student dying 3 years after they took out the policy is pretty minimal and not really something I would personally worry about. And actually it makes little difference because all the doctrine of fraudulent conveyance would do would be to but the money into the estate where it would be anyway if the policy wasn't in someone else's name.

Anyway, bottom line: if you have a family, especially little kids, make sure you take the proper measures so your life insurance policy isn't eaten up by school loans if you die.