Non-Traditional Way to Plan for College
Helping your children or grandchildren with college expenses can be one of the greatest gifts you’ll ever give.
College costs are on the rise, and today more than ever, Students are graduating with significant debt or abandoning higher learning all together due to high tuition. Therefore, by choosing a college planning strategy today, you can make an investment in your children that will last them a lifetime.
| For many families, any discussion about saving for college starts and ends with 529 college-savings plans. But in some cases families are using a non-traditional and less well-known cash-value life insurance. |
For example, if you or your child own a whole life policy, it may provide some added benefits beyond life insurance. Parents and children (over age 18) may still be able to take a loan from their whole life policy for education.1
One of the advantages of buying a cash-value life insurance is that it is not counted as an available asset in financial-aid calculation.
When students apply for financial aid, a portion of the funds in a 529 Plan is often considered before a financial award is determined–but life insurance is not.
A family could invest tens of thousands of dollars into a policy’s cash value without it hurting a student’s financial-aid prospects.
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Legacy 10 Payment Plan Pay $200 a Month for 10 years ONLY |
| Gender | Child’s Age | Total Paid in 10 Years | Cash Value Accumulation After 10 Years | Cash Value Accumulation After 30 Years | Cash Value Accumulation After 50 Years | Life Insurance Benefits After 10 Years | Life Insurance Benefits After 30 Years | Life Insurance Benefits After 50 Years |
|---|---|---|---|---|---|---|---|---|
| Male | 3 | $24,000 | $22,962 | $74,382 | $245,594 | $228,297 | $378,305 | $637,592 |
| Female | 3 | $24,000 | $22,464 | $75,383 | $252,854 | $264,313 | $435,063 | $737,744 |
Another advantage of using cash value whole life insurance to save for college is a provision known as “uninterrupted compounding”. This allows money in a cash-value policy to continue to grow even if the policyholder takes out a loan against it. For example: if you have a policy with a $70,000 cash value, and you take out a $40,000 loan against it, your policy will continue to earn interest based on that $70,000. This is the only product on the planet that has that feature.Withdrawals are typically taken as loans, but if a policyholder dies before the loan is repaid, the beneficiaries will receive the difference between the intended death benefit and the outstanding loan.
Life-insurance policies aren’t counted as an asset in financial-aid formulas and don’t affect the aid students receive, though 529 assets are factored into aid decisions.
Unlike a 529, which can only be used to pay college-related costs, the cash value of life insurance may be used for any purpose.So if a child decides not to attend college or if an emergency arises, the account may be used without penalty.
1Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty.Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.