There are many ways to cover the cost of a college education. The cost of a college education has gone up to the point that it is difficult to pay for and college loans follow the graduate for the remainder of their lives due to the interest on the loan and the long repayment schedules.
Many individuals point out that 529 Education plans are the way to fund college education. If the money is used for qualified education purposes it can grow tax-free and be removed from the plan tax-free. However, if the money is not used for qualified college education costs, the growth of the money becomes taxable and subject to penalties when withdrawn. Also, typically the money is conservatively invested for lower growth and safety but is still subject to market downturns. The plan is not self-completing in the event a parent or grandparent funding the plan dies. 529 Plans have funding limits subject to annual gifts (five years at a time). Lastly, 529 plans only serve one purpose and that is college funding.
Funding College Education with Life Insurance
An advantage of life insurance not enjoyed by any other funding vehicle is that the plan is self-completing if anything happens to the individual funding the policy. If someone dies, they will know they have fully funded the education obligation. Any other savings vehicle may suffer a shortfall if the individual funding the education plan dies before funding is completed. Cash Value in a permanent life insurance policy is not currently a countable asset when applying for FAFSA financial aid.
Signature Guaranteed Universal Life
Signature GUL has unique features that can make this a match for saving for college education. The death benefit is guaranteed if premiums are paid and no loans are taken so that if a premature death occurs the death benefit will be there to help cover the cost of college education needs. Signature GUL also has the Guaranteed Cash-Out option that allows a partial return of premium after 15 years and a full return of premium after 20 and 25 years, up to the Cash-Out benefit maximum. Depending upon the timing, the policy can be turned in for a return of premium and the premiums can be used to fund college education. In the meantime, the individual funding the policy has guaranteed protection to self-complete the education funding needs and cover other needs as well.
Darrell and Christine, age 35, felt they needed life insurance protection for Christine and their two young children in the event something happened to Darrell, who was the primary means of support.
The couple also wanted to have the option to help their children pay for their education. They talked to their Financial Advisor and determined a $500,000 Signature GUL policy could help cover several of the risks faced by their family.
In the event that something were to happen to Darrell, they would have protection for the family that could cover education costs for the children, pay off the family home, provide Christine funds to run the home, and provide some funds to put away for her retirement.
Then, the Financial Advisor showed them that the Cash-Out Rider included on the Signature GUL policy would allow them to surrender the policy in exchange for a partial return of premiums at the 15th anniversary or a full return of premiums paid at the 20th, or 25th anniversary1. If the family found they no longer required insurance on Darrell, the premiums paid over the years could be paid out and re-purposed to help pay for their children’s education or student loan repayments.
Lastly, their advisor added that the policy also included Accelerated Benefit Riders for Critical, Chronic, and Terminal illnesses2. In the event that Darrell was diagnosed with a qualifying illness, he may be able to accelerate all or part of the death benefit and receive an unrestricted cash benefit giving Darrell and Christine the option to assist with their children’s education even in the event that Darrell suffered an illness that made him unable to work.