Permanent Life Insurance as Part of a College Savings Plan

Of all the solutions that are discussed for funding a college education, none is less glamorous than permanent life insurance. And none of them is more necessary.

All of the other solutions fail if you die or become disabled and can’t continue to make annual contributions. Under this scenario, only life insurance succeeds.

Permanent life insurance offers several advantages as part of a college savings plan.

• Permanent life insurance provides benefits in the event of the insured’s death – meaning that if something happens to you or your partner, your child can still attend college.
• Your permanent life insurance policy will accumulate cash value on a tax-deferred basis.
• The cash value of a permanent life insurance policy can be used for any purpose. Depending on the type of policy and how it is structured, you may be able to access this cash value (through partial surrenders and/or policy loans) to help pay tuition and living expenses.
• Permanent life insurance is one of the few assets that will not be taken into consideration for the purposes of determining your child’s eligibility for financial aid.

Some education funding tools dictate how and when the money you have saved must be used to avoid penalties and taxes. Permanent life insurance doesn’t. If you decide not to use your life insurance to help with a college savings plan, it just keeps on growing – tax-deferred.

Planning for your financial security means more than just creating a college savings plan. To be certain funding will be available when needed, consider other potential life events that could affect your goals:

• Unexpected death of you or your partner
• A disability or illness that could prevent your or your partner from working
• Your own retirement savings goals

Unless you plan for these possibilities with adequate life insurance, disability insurance and other financial products, you or your family could be forced to tap into savings to cover other expenses.