Why Whole Life Insurance Is Best for College Funding
Using whole life insurance--life insurance with cash value--to fund a child's college has benefits and drawbacks, as do all methods.
Other People Are Reading
-
Time Frame
-
Whole life cash value life insurance needs time to develop cash value. Some people use a life insurance policy plus other investments to fund college.
Features
-
Besides providing funds for college, whole life insurance also guarantees the money if you die. The death benefit provides for your family's needs, including college.
-
Types
-
You can use several types of whole life policies. These include universal policies, which grow with prevailing interest rates; variable policies, which use mutual funds for cash value; and traditional policies with guaranteed cash value.
Face Value
-
Regardless of the type of policy you use, you need to have a large face value to use life insurance to fund college.
Effects
-
Borrow out the cash value to pay for your child's college education and never pay taxes on the growth as long as the policy remains in force. The money grows in the tax sheltering of the policy as long as you borrow, rather than withdraw, the funds.
Considerations
-
If you repay the funds after your child's schooling, you'll have the funds available for retirement. The insurer sets up a loan against your cash value. The interest you pay is just a fraction higher than the amount you receive on the cash value.
-
References
Resources
- Photo Credit Image by Flickr.com, courtesy of John McStravick
