Many people are unaware that life insurance can be used to save money for a college education. Although a 529 savings plan is more popular, an insurance policy can offer more benefits. Probably the biggest advantage when saving for college with a life coverage policy is that you can pay for your children’s education and get life coverage at the same time!
The death benefit
Almost any policy can pay for your children’s college education if something happens and you die. You can open an insurance trust fund and deposit the money there and ask that the money to be spent only on college tuition and costs. This way, you can make sure that the money is well spent.
Life Insurance as a savings vehicle
A whole life insurance policy works very well as a savings vehicle: the longer, the better. If you’ve decided to have children, it is important to get coverage. Consider permanent coverage for two main reasons: it will never expire (as long as you continue paying the premiums) and it builds cash value.
A part of the sum you pay as premiums is directed to the policy’s account. Your investment will grow at a fixed rate over time. If your child is young now, by the time he or she will be ready for college your policy’s cash value will cover a part of the tuition costs. Withdrawing against your policy’s cash value is tax-free and you have the freedom to spend the money on what you like.
Life insurance vs. a 529 plan
A 529 plan may have lower costs, but since it is strictly a college saving account, you will not be able to spend the money otherwise. If your child doesn’t want to go to college, you may have to pay some penalties. With life insurance, you can spend the money on whatever you like and need.
Life insurance sin out counted as an asset when determining financial needs, which means that your child can still qualify for different programs that offer scholarships.
A 529 plan depends on the market. If the economy goes down, the same thing happens to your savings. A life coverage policy however can be bought with additional riders that offer guaranteed returns. This means that your policy will build cash value at a fixed rate each year: a slow process but a very rewarding one if you patience.
In conclusion, a whole life insurance policy can be a great college saving tool and in some cases even better than a 529 plan!