Can Life Insurance Really Pay for a College Education?

Many parents – regardless of whether their children are newborns, toddlers, grade schoolers, or even in their early high school years – worry about the consistently rising cost of college education. And this is a very viable fear.

According to Inside Higher Ed, one year at a public two-year college, for the 2017-2018 school year, averaged $3,570, while private non-profit four-year institutions averaged nearly $35,000 per year.1 So, over a four-year time period, many parents could be facing a price tag that rivals that of a home mortgage…or worse.

How can parents help their kids – and themselves – with funding the high, and rising, cost of college education?

While there are college savings plans like the 529, which allows tax-deferred growth of funds, and penalty-free withdrawals when used for education (and related) costs, there are many who are turning to more “non-traditional” college funding financial vehicles. One such alternative is life insurance.

Why life insurance?

One reason is that, while the main purpose of life insurance is to provide a death benefit, permanent policies – those that contain a cash value component – can also provide added advantages.

For instance, these cash value funds are also allowed to grow on a tax-deferred basis, which in turn can allow the money inside the policy to grow and compound exponentially. And, because these funds can be borrowed from the policy (rather than only withdrawn), they can also technically be accessed tax-free.

In addition, many parents and other loved ones who have set up a 529 college savings plan for a child who ends up not attending a higher education institution have found that these plans can only either be transferred to another college-bound beneficiary, or alternatively, be liquidated with interest due on the withdrawal.

On the other hand, life insurance cash value can be used for any need that the policy owner sees fit – whether that be to pay for college tuition and / or education related costs, or to purchase a new home, fund a wedding, or even take a nice, long-awaited vacation.

 

How Life Insurance “Self Completes” – Even in the Event of the Unexpected

In addition, should the unexpected occur and the insured pass away, the death benefit from the policy will be paid out to the beneficiary. This is what is oftentimes referred to as the life insurance being a “self-completing” plan.

This, however, is not the case with a 529 college savings plan. In this case, should the person funding the account die, the account balance won’t automatically grow to a set dollar figure, and then be paid out – free of income taxation – to the recipient.

The bottom line is that, while many people do not like to consider insurance products, life insurance can and does offer some unique advantages when it comes to saving for college. In addition, this financial vehicle provides a great deal more control and less risk.

 

Offer Guaranteed Growth on College Savings, Regardless of What Happens in the Market

Want to offer your clients a plan that provides guaranteed growth, along with principal protection on college savings, regardless of what happens in the stock market, and get paid handsomely to do so? Give us a call now, toll-free, at 1-800-643-6143 and we’ll provide you with all of the details you need to get started.

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Brian J. Kay, Executive Director, Leads4Insurance
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