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Home > College Savings > Cash Value Life Insurance - A Better Alternative to the 529 College Savings Plan |
Cash Value Life Insurance - A Better Alternative To 529 College Savings Plan
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Babies are a gift from God. They bring joy and happiness, but also major responsibilities. Every parent's dream is for their children to attend the best college, but more often than not, it is a merely dream for many parents because the cost of college is prohibitive. However, if you start early, and choose your college savings option wisely, then you allow your children's choice of college to be determined by their grades and SAT scores as opposed to tuition cost.
The average cost of a four-year private college has surpassed the $30,000 per year mark. As they have for the past 11 years, average college costs have risen at a rate double that of inflation, averaging around 6%, according to the latest report from the College Board, a non-profit association of 4,500 schools, colleges and universities. Here are few examples of college tuition costs for fall 2007:
| College/University |
Yearly Tuition Cost |
| Harvard College |
$34,998 |
| New York University |
$35,290 |
| Princeton University |
$33,000 |
| Stanford University |
$34,800 |
The Importance of Starting to Save for College Early
| |
John |
Michael |
| Child's age when saving started |
8 Years Old |
Newborn |
| Savings goal for college |
$150,000 |
$150,000 |
| Monthly savings required |
$799 |
$309 |
| Savings time frame |
10 Years |
18 Years |
| Total savings |
$95,874 |
$66,755 |
| Total earnings at assumed 8% per year |
$54,126 |
$83,245 |
| Cost of waiting |
$29,119 |
$0 |
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Popular college savings funding options
- 529 Plans
- Cash Value / Permanent Life Insurance
- Coverdell ESA (Education IRA)
- Custodial/Gift Accounts (UGMA/UTMA)
- Series EE Bonds
529 Plans vs. Cash Value Life Insurance Plan
Section 529 plans could be a great college savings option until you discover Cash Value Life Insurance as college savings option. Cash value life insurance policy in particular whole life provides almost all the advantages of 529 plans and eliminates disadvantages of 529 college savings plan.
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529 Plan |
Cash Value Life Insurance (Whole Life Policy) |
| Tax advantages |
Funded with after federal income tax dollars. Grows tax deferred and tax free for qualified tuition expenses. |
Funded with after federal income tax dollars. Grows tax deferred and taken out tax free as policy loans. |
| Investment risk |
529 plans are investment based and provides opportunities to invest in predetermined funds or portfolio. There is no guarantee of return or principal unless it is invested in low return fixed funds. |
Whole life comes with guaranteed cash value and non-guaranteed dividend. |
| Financial aid |
529 plan is efficient for financial aid purpose but still it will included in parent's asset for calculation of expected family contribution |
Life insurance values are not included in the federal methodology for calculating financial aid, so you will not be penalized for saving for college. |
| Nonqualified penalty |
529 plans money is not used for qualified tuition expenses then there is 10% federal excise tax penalty over and above income tax. |
There are no such restrictions. Cash value can be used for any other purpose. |
| Death and Disability of Parent |
529 plans are investment and do not have any insurance feature so if breadwinner dies then plan may be incomplete. |
It is a life insurance policy so covers life of breadwinner and if waiver of premium rider is added then it will be self-completing in case of total disability. |
| Colleges outside of USA |
As long as college is accredited by the U. S. Department of Education. |
There is no such condition exist. |
As you can see, Cash value life insurance plans are great college savings options. These plans give you all of the advantages of other college savings plans with the added advantage of paying a death benefit should you die prematurely or become totally disabled. Request your personalized whole life proposal.
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