Disabilities Insurance and Student Loans: How Can I Protect Myself?

Picture this scenario: you’ve just graduated dental school.  You have well over $100,000 in student loan debt.  You recently started working in a dental practice.  But then, unexpectedly, you become disabled and are unable to work.  All of a sudden you have no income and no way to make your student loan payments.  What would you do?

This scenario may seem far fetched, but one in four people will become disabled at some point before retirement.  Medical and dental students routinely graduate with hundreds of thousands of dollars in debt, and student loan debt in the United States has surpassed $1.3 trillion.  If you are carrying a heavy student debt burden, a disabling condition can have a magnifying effect on your financial security.  An inability to pay your student loans puts you at risk for default and a slew of financially-damaging penalties.

You might also be surprised to learn that student loan debt cannot be discharged in bankruptcy.  In fact, the only individuals who are eligible to have their federal student loans discharged are those who meet the federal government’s stringent standard of “total and permanent disability.” Keep in mind that this discharge provision only applies to federal loans.  Private lenders may or may not have similar provisions in their loan agreements.

In the event of a disabling condition – even if you have a disability insurance policy – your monthly benefits may not be enough to cover both their living expenses and your student loan payments.  One potential solution is purchasing a disability insurance policy with a student loan protection rider.  Disability insurers have started to offer student loan protection riders that typically allow individuals to secure monthly benefits in addition to their standard policy benefits for the purpose of covering their student loan payments.  Usually, no loan documentation is required until a claim is filed.  Additionally, students can receive discounted rates, including no cost while in school, on group disability insurance policies through either the American Dental Association or local dental associations.  Whichever policy you choose, your insurance company must still determine that you are totally disabled before you are eligible to collect the benefits associated with this rider.

An alternative solution is to simply purchase additional disability coverage to ensure that both your monthly living expenses and student loan payments are accounted for in the event of a disability.  One advantage to this approach is that you have greater flexibility to allocate your monthly benefits where you see fit.  Before you purchase a student loan protection rider or additional coverage on your individual disability insurance policy, check with your insurance provider to see how much both options cost in comparison to the additional benefits you receive.  Depending on your carrier, one option may be more financially beneficial than the other.

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