How to use your life insurance to help pay for your child’s school fees


NEW YORK – September 21, 2021 – (

iQuanti: University expenses can add up quickly, and there are many different strategies to cover these expenses. If you have a permanent life insurance policy with a cash value component, it can do a lot more than protect your family with a generous death benefit while your children are young. When your kids reach college age, it can be part of your financial planning to cover college expenses in addition to traditional savings methods like a 529 savings plan.

Unique characteristics of life insurance

Life insurance can be a component of your financial plan to pay for college expenses because it has unique characteristics:

1. Life insurance does not count as an asset

When applying for financial aid, you will be asked to provide information about your income and assets so that schools and / or the federal government can determine how much university expenses you can afford. Savings in a 529 plan are counted as an asset if you apply for financial assistance, while the cash value of life insurance is not.

2. The cash value can apply to anything

Money from a 529 plan must be used for college expenses or it is subject to heavy tax penalties, but the cash value of life insurance can be used for anything, which makes it a great addition to your overall financial plan. In the event that your child decides not to go to college, if their expenses are covered by a scholarship, or if they need access to money in an emergency, the cash value of life insurance can help.

How to access the cash value of a life insurance policy

There are three main ways to withdraw money from a cash value policy:

1. Take out a loan against the value of your life insurance policy

You repay the life insurance loan in full to restore the value of your contract, plus loan fees and interest charged by the insurer. The policy’s death benefit will be reduced as long as there is a loan outstanding, and if you die before it is paid off, beneficiaries will receive a reduced death benefit.

If you don’t repay the loan, the balance will continue to grow as the interest compounds; if the loan exceeds the cash value balance, the policy will expire and you will owe taxes on any accumulation of cash value in excess of what you paid in premiums (earnings).

2. Withdraw cash value

You can withdraw some of the cash value, but be aware that you will owe tax on any earnings you withdraw from the policy. In this case, you have no intention of repaying the money and the death benefit will be reduced.

3. Surrender the policy for the available cash value

Surrender of the policy means that you cancel it for good and receive the cash value of the policy, less any fees charged by the insurer. This option is not common, as most people want to keep an active life insurance policy while their children are in college so that their child receives a death benefit in case something happens to their parents. . You will owe taxes on any winnings, so you may want to consult a tax advisor before making this choice.

The bottom line

Life insurance can be a useful part of your overall education savings plan. If you no longer need the full death benefit, it may be a good idea to use life savings as a supplement to traditional education savings plans like the 529 rather than replacing them.

When considering any of these options, you should contact your insurance company to confirm the cash value you have available and the fees that would apply if you used it, as well as its impact on the death benefit of your policy. A financial advisor can better help you assess your specific options.

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How to use your life insurance to help pay for your child’s school fees

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