In our last two blog posts, we discussed the upside and downside of 529 plan for college planning. Now we will discuss an alternative option, it has some of the same contribution, accumulation, and distribution tax features of a 529 plan, but also offers additional benefits. It is Whole Life Insurance.
Below is a list of the benefits of using a Whole Life insurance policy for college planning:
In our next blog post, we will discuss what are the downside of Whole Life insurance for college planning and which segment of the consumer market it is appropriate for college planning.
Below is a list of the benefits of using a Whole Life insurance policy for college planning:
- Cash values can be borrowed via policy loans, for college or other uses, without a taxable event.
- Guaranteed premiums, guaranteed death benefit, and guaranteed cash value in a whole life insurance policy are not subject to market volatility. The policy's cash value will not decrease based on performance of financial markets. Any dividends paid will enhance the cash value and death benefits.
- In the event of a disability, an optional waiver of premium rider may continue to pay the premiums to guarantee the proper funding stays in place for the college plan. This is crucial in the event of a disability to make sure the money is going to be there to pay for college.
- The cash value inside a life insurance policy is not counted as an asset for the owner of the policy when applying for financial aid under current FAFSA guidelines.
- An additional benefit to life insurance that is not addressed in a 529 plan is that in the event of death, the life insurance policy provides an income tax-free death benefit to the beneficiary which can be used to pay for college education.
In our next blog post, we will discuss what are the downside of Whole Life insurance for college planning and which segment of the consumer market it is appropriate for college planning.
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