If you are thinking about how to fund your child's education than you have heard about the rising cost of college tuition. In response, many have turned to funding 529 plans to begin saving for their children's college education. Here is an alternative approach that under the current economic climate is a safer choice, and will give you greater flexibility for the future.
The alternative is the use of a form of permanent life insurance, either Whole Life or an Indexed Universal Life Insurance plan to fund your children's college education. The use of permanent life insurance to fund your child's college education has some outstanding benefits that should not be overlooked. For many years people have used permanent life insurance to provide funds for college and other life events. The advantages of using a self completing Insurance plan are listed below.
The policy is funded with after tax dollars, and grows tax deferred with policy loans available to access the money when desired. Life insurance provides an income tax-free death benefit which pays any remaining outstanding loans and also bypasses probate to your beneficiaries in case of your death to complete the plan.
The policy is not a form of investment, nor does it use any investment vehicles. The policy will guarantee a minimum level of interest that will be credited to generate cash value. It then maximizes the cash value growth potential by crediting higher amounts to interest based on the results of a selected index or dividends. There is no risk of the loss of cash value or death benefit as long as premiums are kept current.
Not included in the federal methodology for calculating financial aid. There is no penalty for saving for college, unlike with some other college savings strategies, such as 529 plans.
Greater flexibility in the use of the funds. Should your child obtain a scholarship you are not restricted in the use of the cash value. There are no penalties for using the funds for other life events, such as the case with a 529 plan.
Unlike a 529 plan, by using life insurance your child's college future will be covered in the event of your pre-mature death or disability. With a disability, the policy can continue to be funded to allow for the accumulation of cash value with waiver of premium feature.
There are not restrictions as to type of higher education that your child elects to pursue. Leveraging the benefits of an insurance policy alone or coupled with a 529 plan is a great option, and should be considered as part of your plan.
