Many people do not understand how college funding and insurance can prepare their bank accounts for having to pay for college.
Here are a few ways life insurance can help you pay college tuition:
- Some insurance plans will allow you to take out a tax-free loan. However, if tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the loan or withdrawal is taken and, if taken prior to age 59½, a 10 percent federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value.
- You need to have a plan for how your family will pay off tuition loans if something happens to you. Life insurance may give tax benefits to your beneficiaries after your death. These benefits can be used to pay for education.
- Some insurance policies give you access to a steady cash flow. You are allowed to take this money out for whatever you want.
- The money that you put into your insurance and the cash that you have available through it are not counted toward your income when you apply for college loans. That means you can qualify for a higher loan and more benefits.
- There are investments built into life insurance policies, and your insurance company will likely encourage you to invest more. If you have access to the money you have invested, it can help you put your kids through college.
- Some insurance policies will give you benefits that will help pay for college tuition and pay off loans in certain circumstances. These unforeseen incidents may include the death of a student, the death of a tuition payer, and withdrawal due to medical reasons, family emergencies, or problems with cash flow.
It can be hard paying for college tuition even if you have a good job and are in perfect health. You need to ask the hard questions if you want to provide for your family’s education. Contact our professionals if you want to discover more ways to use life insurance to help pay for your child’s college tuition.