Paying for college might be one of the biggest financial decisions you make. But many families grapple with whether they should buy insurance to protect their investment.

Considering that the average cost of tuition, fees, and room and board tops $20,000 a year for a state school and $44,000 at a private university, you might be tempted. You can buy a tuition refund insurance policy, which will refund the payments you made for tuition, fees, and on-campus housing if you withdraw from school.

The insurance, which costs several hundred dollars per year depending on the plan, is offered by hundreds of schools, mainly through third parties sellers such as A.W.G. Dewar and GradGuard.

As with any insurance product, the devil is in the details. Most plans cover withdrawal only for a serious health issue. If a student drops out for academic reasons, gets expelled, or just isn’t happy at school, the insurance won’t apply.

“For most families, the insurance is unnecessary,” says Shannon Vasconcelos, the director of college finance for College Coach and a former financial aid officer at Boston University and Tufts University. “Most college students are young and healthy, so they probably won’t need to withdraw for medical reasons.”

But there are situations when it might make sense to consider buying it.

Understand How It Works

To decide, the first thing to do is to read the fine print on the policy to figure out whether it might work for your son or daughter. Note that to collect on the insurance, you’ll need to document all claimed expenses and have a doctor’s recommendation that your kid withdraw from school. While many policies do cover mental health issues, a student who withdraws for such a disorder typically must have been hospitalized for the mental health condition for 24 or 48 hours.

Then, find out how much the insurance covers. Some plans reimburse 100 percent of covered costs; others reimburse only 75 percent to 90 percent of the amount of money you lose by withdrawing. Tuition insurance might seem a good idea if your child has chronic health issues, but many policies exclude pre-existing conditions.

You Might Already Have Coverage

Keep in mind that most schools have a refund policy and don't limit reimbursement to medical issues if your child withdraws during the school year, says Jane Klemmer, an independent college consultant.

So if your son or daughter withdraws from school early in the semester, the college will likely refund a big portion of the tuition and housing costs you paid; if you do have tuition insurance, the policy will cover whatever the school doesn’t pay out.

For example, at Boston University, a student who withdraws in the first month of school gets 40 percent to 100 percent of tuition back depending on how far into the semester she is when she withdraws. At Vanderbilt University, the rules are similar except that a student can withdraw during the first 10 weeks of the semester.

Even if a student withdraws later in the semester and doesn’t have tuition insurance, she hasn't necessarily wasted her money, says Klemmer. “You can take an incomplete and make up the work when you come back to school.”

In the end, the decision is based on your financial and medical situation as well as the rules of the policy offered by your child's school's plan. If you're paying full freight for tuition, a few hundred dollars more for the insurance might not make much of a difference to you. Alternatively, if losing a percentage of the tuition paid would have a serious financial impact on your family, then tuition insurance might be well worth it, says Vasconcelos.

Special Report on Student Loan Debt

• Student Debt Crisis Special Report
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• Costing It Out: The Way You Repay Student Loans Really Matters
• Student Debt: Lives On Hold
• 10 Key Questions Every Family Should Consider Before Taking On Student Loans
• Degrees of Debt and Regret: The Burden of Debt on Young Lives

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