WHOLE LIFE INSURANCE
A surprising alternative to education funding
You’ve probably heard of a 529 Plan when it comes to saving for your child’s college education. It’s probably the most recognizable vehicle for college savings because of its favorable tax treatment for qualified education
expenses, as well as a state tax deduction in some states. But it’s not the only option available to you.
A whole life insurance policy can help you accomplish your college savings goals a similar way a 529 plan can. But there are differences between the two that might make whole life insurance a more suitable option for you:
• Take income tax-free college loans.1 You can use the cash value in your policy to take out loans tax-free to help pay for college expenses (or other uses) without having to worry whether they’re qualified education expenses or not.
• Get guarantees without market volatility. A 529 plan likely has funds tied to market returns. While that can allow your college fund to grow over time, a down market could significantly affect what you can afford at a particular given time. Timing is everything. Imagine a market downturn occurring right before your student’s freshman year. Whole life provides you with guaranteed premiums, death benefit and cash value that won’t decrease based on financial market performance. Any dividends paid will enhance your cash values and death benefit.
• Have options in case of disability. What if you became disabled while
trying to build up savings for that college education? With whole life, you have an optional waiver of premium rider to guarantee your college funding goals stay on track.
•Benefit from savings that may not affect financial aid considerations.
FAFSA™ financial aid guidelines currently don’t count your life
insurance policy’s cash value as an asset, which means you could qualify for a higher level of aid. A 529 plan is considered an asset by FAFSA.
Note: some colleges do view life insurance as an asset in determining financial aid.
• Fund an education should the unthinkable happen. Life insurance provides an income tax-free death benefit to your named beneficiary which could fund an education.
Whole life vs. 529 Plan
Potential
deductible
contributions
Tax-free access
to cash
Not subject to
market risk
Optional disability
waiver rider
May not affect
financial aid
amount
Death benefit
Whole life vs.
No
Via policy loan as long as the policy stays in force.
Yes
Yes
Yes
Yes
529 Plan
Via state tax in some states
If for qualified
education expense
No
No
No*
No
* Applicable if owned by parents. 529 plans owned by grandparents/third parties generally do not affect financial aid of beneficiaries under current guidelines
