If you have private student loans, your loved ones could inherit your debt if you don't have life insurance

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• Private student loan borrowers should consider life insurance to pay off loans on their death.
• Unlike federal student loans, private student loans are not discharged in the event of death.
• Speak to a financial professional to determine how much life insurance you'd need to cover private loan debt.
• Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »

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Congratulations, graduates! As you celebrate your accomplishment and prepare for your future, let's talk about those private student loans you took out.

Did you know that private student loans aren't discharged upon your death? That means your estate will inherit your private student loan debt if you don't pay it off. An estate consists of property, debt, and assets left by someone on their death, and it becomes the responsibility of the deceased's heirs.

If you have private student loans, consider life insurance to pay off your debt on your death so that your estate doesn't inherit it.

Private student loans aren't forgiven, even if you die

In 2019, 69% of college graduates graduated with federal and private student loan debt, according to Student Loan Hero. Federal student loans offer a more generous repayment and forbearance plan. During the coronavirus pandemic, federal student loans were put in forbearance and collections stopped on defaulted loans.

Private student loans are privately owned, typically more expensive, and don't have the same generous repayment or postponement options as federal loans.

Additionally, federal student loans are discharged on the death of the borrower. Unfortunately, if you die, private student loans become part of your estate debt. It's at the discretion of the private lender whether to discharge your debt, according to the Student Loan Borrower Assistance program.

Life insurance protects your estate from private student loan debt

According to Silvia Tergas, a financial planner with Prudential, "At the end of day, life insurance is risk management" to deal with "premature death, loss of income due to illness, or disability."

She recommends life insurance to cover private student loans so that if your parents co-signed the loan they won't be left with the debt if you die. To know how much life insurance you need, speak with a financial professional, but online life insurance calculators can help give you estimates as a starting point.

Even if your parents weren't co-signers, you don't want the repercussions of having debt left behind to your estate, especially if you're married.

What is life insurance?

Life insurance is a contract between you and the life insurance company. You pay premiums (monthly or annually) for a payout that your living relatives will receive, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.

"If you don't make it home and someone relies on your income to live, you need life insurance," Mark Williams, CEO of Brokers International, told Insider.

The best life insurance policy for you depends on your budget as well as your financial goals. There are two main types of life insurance policies to choose from: permanent life and term life.

To maximize the benefits of life insurance, it's wise to include a financial advisor, accountant, and estates attorney in your decision-making process to ensure you have proper coverage that adapts as your life changes.

Your life insurance needs change as you age, and you'll need to consider children, marriage, divorce, retirement, and caring for aging parents. By consulting the following three experts, you can ensure you have the proper coverage you need for your goals and for life changes down the road.

Ronda Lee is an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. She is also a licensed attorney who practiced litigation and insurance defense.

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