Using life insurance is an option you may not have considered for helping fund the cost of college. Some policies can go beyond the death benefit and offer benefits that can be used for other purposes—like higher education.
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Sending a child to college is an important goal for many families, but it can be challenging as the cost of higher education continues to rise each year. On average, it costs over $35,000 per year for a student to attend college in the U.S. including tuition, books, supplies, and daily living expenses. Read how life insurance is a competitive way to plan for college funding. |
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Using life insurance is an option you may not have considered for helping fund the cost of college. Some policies can go beyond the death benefit and offer benefits that can be used for other purposes—like higher education. A permanent life insurance policy that can accumulate cash value, like indexed universal life insurance, can offer tax-deferred growth1 and policy loan options.2 You can access potential cash value through policy loans, which are generally income tax-free. Plus, benefits do not affect financial aid eligibility and the money can be used for additional expenses beyond tuition and books, like a computer, transportation or travel costs, sport or club activity fees, or sorority and fraternity fees. You can explore the role of life insurance in college planning in this video: |
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| The sooner you begin saving for college, the longer your money can have the opportunity to grow—helping your child reduce student loan debt and focus on achieving this important milestone |
- The tax-deferred feature of the indexed universal life policy is not necessarily for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing this policy you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.
- Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent the cash value of the contract exceeds the premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax before age 59½, with certain exceptions. Policy loans and withdrawals will reduce the cash value and death benefit. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney for your specific situation.
- The primary purpose of life insurance is to provide a death benefit to beneficiaries. Because of the uncertainty surrounding all funding options except savings, it is critical to make personal savings the cornerstone of your college funding program. However, even a well-conceived savings plan can be vulnerable. Should you die prematurely, your savings plan could come to an abrupt end. To protect against this unexpected event, life insurance may be the only vehicle that can help assure the completion of a funding plan. In addition to the financial protection aspect of insurance, the tax-deferred buildup of cash values can be part of your college savings plan. Generally, if the policy is not a Modified Endowment Contract then tax-free withdrawals can be made up to the contract's cost basis. Moreover, if the policy is not a Modified Endowment Contract, then loans over the cost basis are also tax-free as long as the policy remains in force.
- The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
