In a time when college tuition and expenses can be overwhelming for a typical American family, especially for private institutions, many parents are wondering how they can start saving early for their children’s post-secondary education.
According to College Board, the average cost for a year of tuition and fees in 2018-19 for a public four-year in-state college was $10,230; for a public four-year out-of-state college, $26,290; and for a private nonprofit four-year college, $35,830.1 These figures require some financial planning, and families have several choices to start saving for college.
One option to consider is a whole life policy that builds cash value.
For every dollar you pay in premiums, a portion goes towards the death benefit and another portion is diverted to a separate cash-value account.
According to Investopedia, the way permanent life insurance can work as a method to save for college is, “for every dollar you pay in premiums, a portion goes towards the death benefit and another portion is diverted to a separate cash-value account,” and “when it’s time for your son or daughter to start college, you can take out a loan against your cash balance.”2 (Investopedia also notes that if you do not pay back the loan, the death benefit will be reduced, and that this kind of life insurance has fees and expenses.)
Because, according to MarketWatch, “the cash value doesn’t currently factor into college financial aid calculations,”3 that cash value of a whole life insurance policy may be used to help pay for college. For many parents, this is an appealing element of this type of college saving strategy.
It’s important to note there are certain restrictions and limitations when using the cash value of a life insurance policy. Make sure you understand these restrictions and limitations, and if you have any questions about your policy, contact your insurance company.
If you think using a whole life insurance policy to help save for your children’s college education might be right for you, contact a financial advisor to help you navigate the best way to save. If you have any questions about the cash value of a whole life insurance policy, contact an independent broker or a licensed insurance agent.