Posted by Universities are about to open in the fall, and parents have already begun to figure out how to pay their children's tuition next.
The soaring tuition for higher education, the cost of housing and renting, and the cost of school books and teaching materials are all burdens for parents.according toAmerican Life Insurance GuideOfReport.Higher Education TuitionThe increase is the highest in the past 30 years (the lower right part of the figure below).
If you have children in your family, there is another unconventional and usually overlooked way to help pay for your children’s tuition: a life insurance policy with a cash value.
Life insurance you can use while you are alive-pay for college tuition
Many people know that when a person passes away, life insurance will compensate the beneficiary a sum of money.But according toAllianzIn the 2018 life insurance demand survey,51% of Americans surveyed are not sure or believe that life insurance can be used to pay for their children’s college tuition. 66% of people are unsure or do not believe that benefits drawn from a life insurance policy account are usually tax-free.
Most parents buy themselves whole-life insurance policies, perhaps the original intention is to prevent their children from falling into financial trouble when the parents have an accident.But this type of whole life insurance policy usually also provides the ability to accumulate cash value.If necessary, we can take out part of the money by borrowing from our own insurance policy to pay for our children's college education.
(What needs to be added is: policy borrowing and withdrawal will reduce the cash value of the policy and the death benefit, and may also cause the policy to lapse, or the original guarantee that the policy will not be terminated faces the risk of termination. If you need to avoid this In this case, additional premiums need to be deposited. At the same time, if the amount withdrawn exceeds the deposited part, then that part will be taxed.)
By adding to the policy accountCash value for borrowing, We can withdraw part of the money to pay for our children’s college education.This part of the money is tax-free.However, it should be noted that different life insurance types and products have different degrees of impact on the policy after borrowing. For insurance types and products with weak cash value growth capabilities, we strongly recommend repaying the loan with interest to avoid policy failure. .
To one's ownPolicy account loanIn this way, the loan amount cannot exceed the total cash value of the policy account. In this regard, the insurance company usually updates the total loanable amount of the account every year, which is similar to a 401K loan.If you plan to use policy loans to pay for your children’s education expenses, you need to contact a professional life insurance broker to implement a simulation evaluation and re-planning of the new policy cash value and policy design methods to understand the consequences of withdrawing money. And to prevent the occurrence of discontinuation of insurance and adverse tax consequences.
In addition, if we unfortunately pass away while the loan has not been repaid, the money will be deducted from the death compensation. If the family’s financial conditions are difficult, this result will make the family receive less than the insured amount. gold.But if this is the purpose of your planning and the reduction in death compensation does not affect your family's financial situation, you can choose not to repay the loan.
(>>>Recommended reading:Can children and newborn babies buy life insurance in the United States?What kind of insurance should I buy?What are the advantages and disadvantages of buying life insurance for children?）
Core competitiveness: does not affect the university tuition and bursary plan
Another benefit of using a whole life insurance policy to pay for college expenses is:The cash value of the policy account is currently not included in the calculation scheme of university grants. This means that your child can still apply for college bursaries and use the cash value in the life insurance policy as an additional source of expenses.
What kind of insurance is appropriate for planning children's education funds?
American Life Insurance GuideI believe that for the purpose of withdrawing money,The insurance types and policy products with greater cash value growth potential should be selected for planning.
insurGuru©️Insurance AcademySuppose a parent opens an insurance policy account for a 1-year-old daughter that has undergone strict product selection and plan design.Depositing $3K every year, depositing for 15 years until my daughter grows up to 16 years old, a total of $45K is deposited.We use one hereRelatively conservativeOfS&P500 annual average forecast interest rate6.3%. The following shows the corresponding policy cash value and corresponding insurance protection at different stages of the daughter's life.
*This Chart is not an offer, contract, or promise of future policy performance. Actual policy values may be more or less favorable than the nonguaranteed values shown.
From the figure, we can see that the accumulated investment of $15K for the daughter in 45 years, when the 18-year-old daughter is ready to go to university, there is a cash value of $72K in the policy account, which can be used to pay for 2 to 4 years in installments.University tuition.
If the daughter chooses not to withdraw at this time, thenAfter she turns 20, the cash value of the policy will exceed 10, which is enough to pay her down payment to buy a house.When the daughter is 60 years old, the policy account can provide her daughter with more than $110 million in retirement income.At the same time, this insurance also provides a huge amount of accident compensation at different ages in the daughter's life.
In addition, parents can also choose to transfer the ownership of the policy to their daughter after their daughter enters the society and starts working, so that her daughter can continue to develop a good habit of saving with the policy.At this time, the daughter can choose to continue to deposit money in the policy account and turn it into her ownTax-free pensionThe account can also be used as a wealth transfer account to pass on insurance policy claims to grandchildren and granddaughters.
With the investment of parents' ability, saving money and financial planning from the child's childhood is the most precious wealth and gift that parents give to their children in their lifetime.
(American Life Insurance GuideNet editor and release)
