Life Insurance Versus the 529 College Savings Plan

Which Will Provide the Best Outcome?

For many people, having a college degree can help to provide them with better job opportunities, which can also mean more choices. Unfortunately, getting that degree can come with a hefty price tag.

According to Forbes, college costs could total as much as $334,000 in just a four-year period at some of the more elite private colleges, with the national average cost of attending a four-year public collage at more than $28,000 per year – putting the total bill in the 6-figure range.1


Planning Ahead for a 5- or 6-Figure College Tuition Bill

With tuition that can exceed the price of purchasing a new home, how are people paying for it (or at least, attempting to do so)?

One way is to start saving through a tax-advantaged plan like the 529 college savings plan – which can offer numerous benefits – ideally while the child is very young. Here, money can grow on a tax-deferred basis, allowing it to compound over time without the need to pay taxes each year on the gain.

Unfortunately, though, if the money that is saved in these plans isn’t used for education-related expenses, many of their tax-related advantages will disappear. And, if the unthinkable occurs, and the parent and / or grandparent who is contributing to the plan passes away, there is no guarantee that there will be even close to enough funds in the plan for the child to pay his or her future educational expenses. (This is particularly the case if the death of the contributor occurs in the early years of the plan).


Considering Alternate College Funding Options

When it comes to saving for college, many people are unaware that there are alternative “tools” available that can allow them similar (and more) benefit than the “traditional” funding plans. One such tool is a permanent life insurance policy.

Permanent life insurance policies allow the tax-deferred build up of funds. So, similar to the tax advantages that are gained with a 529 college savings plan, the money in the life insurance cash value is allowed to grow and compound without the need to pay tax each year on the gain.

But in addition to the benefits that are offered with a 529 plan, life insurance goes a step further in that, should the unexpected occur, there is a death benefit that can still guarantee that funds will be available for the child’s education – and, these funds are received income-tax free.

As an added bonus, unlike the money that is invested in a 529 savings plan, life insurance cash value will not be considered if the child (or parents) apply for financial aid. This can allow for the borrowing of any additional funds that may be needed.

In addition, should the child opt not to attend college in the future, there is no “penalty” incurred with the cash value in the life insurance policy. In fact, these funds may be withdrawn or borrowed for any need – education-related or otherwise – by the policy holder. So, this funding mechanism can provide a great deal more flexibility.


Providing Clients with Real Financial Tools They Can Use

Funding for a child’s future college education can involve numerous areas of personal finance, including investing, cash flow, and tax considerations. It can also require application for financial aid. So, it is essential that all of these areas work together, and that one component of the plan won’t be detrimental to another.

Offering life insurance to clients as a viable college funding tool can provide them with the peace of mind in knowing that money will be available, no matter what the future holds. Doing so can also help to ensure that you stand out in their minds as an advisor who is truly meeting their financial needs.

If you’d like to join thousands of insurance and financial professionals who are already using life insurance as a college savings mechanism – and who are generating an additional $5,000 or more per month in commissions without having to do any additional prospecting – give us a call now, toll-free, at 1-800-643-6143.



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Brian J. Kay, Executive Director, Leads4Insurance
921 Port Washington Blvd., Suite # 3 Port Washington, NY 11050
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