My child's yeshiva requires I purchase insurance to cover the cost should I elect to move away, switch schools, the child gets sick etc. the premium is 1.8% of the tuition. if you prepay the full tuition you are exempt from this requirement. Is this requirement a form of ribis? They are essentially charging a fee to protect the credit they extend to you by allowing you to pay in installments.
Answer:
This would be permitted.
Sources:
See Laws of Ribbis, Chapter 7 footnote 30, in the name of Rav Elyashiv, that a a school is considered a hired worker and as long as at the time of payment their work has begun, i.e. the school year or preparatory work, there is no problem of a discounted pre-pay price. The price with payments is viewed as the regular price, which includes insurance. Purchasing insurance for payments is also a separate fee which goes to the insurance company and is not connected to the loan, see Maharsham 3:124.
In addition, if the school is structured as a corporation there is additional reason for leniency. A heter iska may also [and often is] set up by the school to avoid all potential problems.
