With the increased cost of college tuition, parents are finding it more and more difficult to meet tuition payments. Among other saving tools, many are using life insurance as a means to afford higher education expenses. To learn more about how you can utilize this feature of life insurance, read on.
Describes how to use a policy for your child's education funding.
Recommends the right type of policy for effective college savings.
Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.
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The proceeds from a life insurance policy can be a good source of funds for making college tuition costs more affordable. Cash value insurance, especially, is ideal for this purpose.
Anyone with children is already well aware of the high cost of college tuition and may have even started saving up for the thousands you'll spend. A life insurance policy can be used as an additional college savings resource, as well as a guarantee that, in the event of a premature death of you or your spouse, your child will have access to sufficient funds to finance a college education.
The savings component of a cash-value insurance policy can be used to put aside money to cover the cost of tuition. This savings feature allows a portion of your premiums to be invested.
Depending upon the type of policy, either you or the insurance company creates and maintains your personal portfolio. If the bills for tuition become too burdensome, you can take out a loan up to the amount of accumulated savings.
The insurance company charges you a lower interest on the loan than any other financial institution will. If you take this route, the death benefit of your insurance policy will be reduced by the amount you have taken out on loan. If you choose to pay off the loan, the original amount of your death benefit will be re-established.
The advantage to using your savings from a life insurance policy instead of from another source is that no taxes are applicable to these loans as long as you make your premium payments. Furthermore, the interest you earn from your life insurance policy's investments is non-taxable as income. Because your earnings are never reduced by taxes, your policy's portfolio increases more rapidly than if it were invested without the aid of a life insurance policy. In essence, your money grows tax-deferred and can be used tax-free!!
A permanent, or whole life insurance policy is needed if saving for college is part of the reason why you would choose to get insured; get in touch with an agent from one of our partner carriers who will discuss your protection and investment options, and present you with a quote on what the associated costs would be.
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If you purchase a to act as a source for funding your child's education, you must purchase a cash-value policy. Since term life insurance has no savings vehicle, it can't be used as a source for money without seriously decreasing its death benefit.
With a cash-value life insurance policy, you can use the savings component to save money for college expenses and the death benefit component to secure the funds needed for your child's education in case of your premature death. With this approach you use your policy to its fullest potential.
Another option insurance agents suggest for funding a child's education is to purchase a cash-value life insurance policy insuring your child.
Although there are advantages to this method - your child is guaranteed insurability for life under the policy as long as the premiums are paid on time and the value of the policy is not required to be reported to the financial aid office, thereby possibly increasing the amount of money the college gives your child - these advantages don't really pay off in the long run. The financial aid increase can be negligible and the risk of not being insurable later in life isn't great enough to merit the extra cost. We suggest you stick to insuring yourself.