If you’re concerned about paying for your child’s college education, you’re not alone. Most parents know that paying for college is going to cost them. When it comes to college expenses, there are many ways to pay, including college savings plans, scholarships, or loans. But there may be one you never thought of: life insurance.
The primary purpose of life insurance is the provision of a lump sum death benefit. But there are also innovative ways to use it to pay for higher education.
1. Taking Out a Life Insurance Loan
Years ago, you purchased a life policy. Over decades, it may have built up some cash value. Many policies have a loan provision, allowing access to some of the accumulated cash value. Using this feature could free up cash for writing tuition checks.
2. Buying Life Insurance at Birth
If your child was just born, college may seem far off, but you know how time flies. You can buy a policy for yourself now, and its cash value has the opportunity to accumulate over time. When it’s time to write that first tuition check, you’ll have an asset to borrow against.
3. Using a Relative’s Life Insurance
Grandparents often want to help with college expenses. If they have a cash value life insurance policy with case value accumulated, they may want to consider borrowing against it to help with a grandchild’s tuition.
When it’s time to write that first tuition check, you could have an asset to borrow against.
4. Using an Older Policy
Sometimes people take out smaller life insurance policies early in their careers. If you’re one of those people and your protection needs are covered by another, possibly larger policy in place, you might consider borrowing from or cashing out the smaller policy—and using the proceeds to help fund tuition expenses.
5. Naming a Beneficiary
You’ve committed to paying tuition bills when the time comes, and you earn a good income so you can afford to help—but what happens if you pass away before your child is of college age? Taking out a life insurance policy with that tuition obligation in mind and designating the funds of your child’s education is one way to honor your commitment. This is also an option for grandparents and other relatives who want to help with college expenses no matter what.
Using life insurance as a college funding option isn’t right for everyone, and there are a variety of ways to leverage life insurance to help with college tuition. The expenses incurred and tax considerations should be considered and discussed with your financial professional to find the solution that’s right for you and your family.
Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. You should consult a tax professional.