There are a number of ways to pay for a college education and today we want to spend time discussing how you can use your entire life insurance to pay for college. While not a standard option presented by the regular financial media, whole life insurance policies can serve as a wonderful way to pay for college. <! – ->
But remember to use your whole life on foot the bill for higher education comes with some best practices that you should understand. To ensure you get the most out of this strategy, we spend some time looking at how people use their entire life insurance to pay for college while giving you some insider knowledge on how to best set up your insurance if this is your goal.
The entire life insurance has a cash value
All entire life insurance policies have a cash value at some point. For some, this becomes cash value immediately. For other comprehensive policies, it may take some time to develop this cash value. Regardless of whether you happen to own an entire life insurance policy that has cash value, you can use it to pay for college. This may be a policy that you have had for decades. You may have bought it when you were young and started working. Or maybe it's a policy your parents bought for you when you were a child.
Does not matter where it came from or what the original plan was. If the entire life insurance has a cash value, you are free to use the cash value for whatever purpose you want. Using the cash value throughout your life policy to pay for college takes the form of the following: you can simply withdraw cash and use the cash to pay for college expenses or you can take out an insurance loan and use the loan to write student checks. ! – ->
The exact method that will work best for you depends on a number of circumstances that are best left as a conversation with your insurance or financial advisor. The important thing to remove is that if you have a whole life policy with cash value, you have the opportunity to use it for university costs.
Specifically Buying Full Life Insurance To Pay For College
It's great to know that if you happen to own a full life insurance policy this could be an option as a source for paying college expenses. But what if you specifically want to buy an entire life insurance policy with a plan to use it for college expenses? In other words, you do not currently own an entire life policy, but you are considering it and want to make sure you make the right choice when choosing an entire life policy for this purpose.
That's exactly what I intend to spend most of this blog post and talk about. We identified five specific best practices for using full life insurance as a tool to pay for college. By following these five best practices, you will be in the best position to ensure that you not only have a full life insurance with cash value but that you have also strategically positioned yourself to approach to provide a college education. <! – ->
# 1 Use dividends that pay full insurance with a focus on accumulating cash value
The first and potentially most important rule is to use cash-focused dividend -pay full life insurance. You can also see the term "delta", which is an insurance industry term for dividends. The entire life policy is not labeled "ready to maximize cash value" so you need to do some leg work to ensure that the entire life insurance policy you are considering is actually one that focuses on cash value accumulation.
A good rule of thumb is to watch how your premium breaks down. An entire life policy with a focus on the accumulation of cash values is one that makes heavy use of an elective paid additional driver. While the exact amount will vary from one insurance company to another, you want to at least make sure that no less than 50% of your premium goes to the paid additional driver.
Uploading the paid additional drivers ensures that the entire life policy you own will build cash faster than a standard lifetime policy. This is crucial for you to maximize your return on premiums paid and build up as much cash value as possible. I also mentioned dividends that pay full life insurance.
Not all full life insurance policies pay dividends, and usually non-dividend insurance policies will delay those who do. While I can not say that using a non-dividend that pays for life would not give you the funds needed to pay for college, I can definitely say that a dividend that pays for life will make it easier because you tend to to accumulate more cash value with this form of whole life insurance.
Finally, if you are stuck on how to find a cash-focused whole life insurance policy, remember that you can contact us for assistance. We are independent life insurance brokers and do business with clients all over the country. You definitely want to make sure you make the right purchase in collaboration with a competent broker to ensure proper policy design and management.
# 2 Do not insure the parent for the child
This one many people stumble upon, but If you are applying for full life insurance to pay for college, I strongly recommend that you insure your child for this purpose. I know you probably thought that because you were doing this to pay for a child's education, it probably made a lot of sense that this would be a whole life policy that insured the child.
But this approach has many pitfalls. and disadvantages. Most importantly, if the child is insured and a parent (especially a primary parent who dies) dies, then the child has an entire life policy with a premium. If, on the other hand, the entire life policy insures the parent and that parent dies, the death benefit solves the university's financing problems.
In addition, entire life policies issued to children can often not meet the premium size required to accumulate the cash value needed to ultimately pay for college. Given their very young age, a seemingly small premium can create a large amount of death benefit that goes far beyond the levels of reasonableness of death benefits for a child. <! – ->
] Life insurance companies are very hesitant to issue high death benefits to a child and this restriction causes a serious obstacle to accumulating lots of cash value throughout the life policy. Remember that cash value is the key component of using your entire life insurance to pay for college.
# 3 A policy that offers multiple payment options
Consider the following scenario. You just welcomed your child into the world. It's a thrill of excitement, but now you are only about 18 years old before he / she goes to college. When college starts, you may want a break from spending money, so it makes sense that you might prefer an entire life policy that does not require future premium payments when your child enters college. This is absolutely feasible.
The entire life insurance policy has the versatility to accommodate a number of different payment options, and an insurance policy designed with the idea that you stop paying premiums when college starts is no problem at all. Know, however, that this is completely voluntary. If you prefer to continue making premium payments during and after college, an entire life policy can certainly accommodate that plan as well.
Also, you do not even have to make a decision when you will finally stop making premium payments when you first buy the insurance. The decision to stop paying premiums can come whenever you want. <! – ->
# 4 Not the best option for college start dates soon
If you're only a year or two away from paying for your first college education and you do not yet own a full life policy, it's unlikely to buy One now is a good idea if the plan is to use it to pay for college.
The whole life insurance needs a few years to build cash value, so those who really have a short time will not have enough time to build any real benefit from the whole life policy. Ideally, I would recommend that all coordinated plans to use the entire life insurance policy to pay for college require that you purchase your entire life about ten years before the first tuition fee.
# 5 Politics should not be a modified capital agreement.
Modified Endowment Contracts (MEC) remove some of the best tax functions that ordinary life insurance policies have. For this reason, I strongly recommend that you do not use an MEC to pay for college. It is not impossible to use a Modified Endowment Contract to pay for college, but you will probably end up paying a lot of income tax on the dividends you take to pay for college. This causes some problems.
- The additional income that you must report may adversely affect your eligibility for financial assistance in subsequent years. be able to raise enough money to pay for college within the policy.
- If you are under 59.5 years of age, you will be subject to a 10% excise tax in addition to regular income tax when you take a break from an MEC.
A focus in addition to just paying for college
The whole life insurance often comes up as an alternative to paying for college because it: <! – ->
- Has solid and reliable returns that allow you to collect the cash you need to cover college costs.
- Allows you to raise large sums of money that most colleges will never think of when deciding on eligibility for financial aid.
- Allows you to withdraw large sums of money from policies to pay for college with zero tax consequences.
However, entire life insurance policies can pay for college and provide money for so much more. When you spend your entire life in this property, you can unlock some serious benefits of life insurance and achieve an effective return that is envied by many other economical savings products.
This is just one of the many benefits you get as part of owning the right entire life insurance policy. We explain more in our book Predictable gains .