Does this scenario sound familiar?
Your client started a college fund for their child's future educational expenses. Maybe it's a 529, or maybe it's a Coverdell account.
But what happens if mom or dad become unemployed or disabled? If they can’t make the annual payments, most plans fold. If they aren’t paid, they aren’t guaranteed. And what about death? Similar to unemployment and disability, no payments means no college fund.
The Solution: Permanent Life Insurance
Permanent life insurance guarantees those funds remain in place, even if the policyholder becomes disabled or deceased.
Think about all the important life events to plan for. There’s marriage, childbirth, college funding and retirement. Savings accounts can be depleted if there is an emergency. General funds can be cut in half when a spouse passes or couples separate (hence the importance of security for single clients). Yet, everyday bills and future savings remain as important, regardless of what happens in the now.
Life insurance provides that long-term security.
Here’s how it works. Your client accesses the cash value accumulation and uses it for their child's college tuition. If the student uses the money on something other than tuition, like rent or a computer, there's no penalty (unlike some other ESAs). If your client dies, thankfully, the funds don’t disappear, like they do with other products. Instead, the death benefit can be used.
There are plenty of advantages to using permanent life insurance for college planning. Life insurance grows tax-deferred. It’s a self-completing product. Plus, a portion of the cash value can be removed tax-free, and it doesn't interfere with financial aid.
Term Life vs. Permanent Life Insurance
Term life insurance is an alternative, but may not be quite as effective. It's more affordable than permanent, but it doesn't have any cash value that a client can pull from (hence why it's cheaper). In the case of death, there's obviously still a death benefit. But at the end of the predetermined "term," if there's no return of premium option and your client is still alive, they'll end up with nothing.
If a family finds permanent life insurance to be too expensive, a term life policy is a decent backup plan to protect against death.
The cash value accumulation is plausibly the number one advantage to utilizing permanent life insurance because it grows when untouched and is accessible when and if needed.
Want to see an example of how it works? Click here.