College Planning And Funding Strategies
The subject of higher education for children raises a host of questions for many of our clients. What school might your children attend? Will you pay 100%, or will your children have to kick in a bit themselves? Will you save for both undergraduate and graduate-level studies? Now is the time to start thinking about your savings plan.
There are many ways to save for college. Among the most popular savings vehicles are 529 and prepaid plans. Just because they are popular, however, does not mean that they are the only strategies you should consider. Here’s one you might not have considered … but should.
Permanent whole life insurance college savings & protection
There are several reasons whole life insurance is a strategy to consider incorporating into your college savings plan:
Death benefit protection. At your death, your whole life insurance policy pays your beneficiaries a death benefit that is generally income tax- free.
Cash value in a whole life insurance policy accumulates on a tax-deferred basis at a guaranteed rate of return. Unlike your 529 plan, the policy’s cash value is not considered for financial aid determinations.
Income tax advantages. The policy’s cash value will provide supplemental tax-free income that can be used to help pay educational expenses. Plus, the cash value does not have to be used for educational purposes in order to maintain their advantageous tax structure. You may access the cash value with tax-advantaged partial surrenders and policy loans. It’s important to consider that access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse and may result in a tax liability if the policy terminates before the death of the insured.
No interruptions. Education savings continue to grow even if you get sick or hurt. By including a Waiver of Premium Rider (for an additional cost), your coverage remains in force should you become disabled and unable to work.
Tax efficient withdrawal strategy. Policy loans have no application, collateral, credit reporting, or fixed repayment schedule requirements.
Contribution limits. Life insurance policies are not limited to the $350,000* lifetime limit of 529 plans.
Asset protection. Personally owned life insurance policy cash values are protected from creditors’ claims in most states.
The bottom line
Your child’s future is not something you want decided by the populous. Neither do we. Lenox Advisors is here to help you explore the strategies that fit best into your overall financial picture. We have the background, experience, and extensive network to guide you and your loved ones past potential pitfalls while identifying unique opportunities. No matter what strategies we recommend, they will be part of a larger financial plan — one that you lead based on your goals and your situation.
* Contribution limits vary by state. Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Loan interest is charged when a policy loan is taken. If you take additional policy loans to pay loan interest, your policy’s cash/account value will be reduced. At some point, no policy values may be available to pay additional loan interest and out of pocket payments will be required to prevent the policy from lapsing. Failure to pay out of pocket amounts will result in the loss of life insurance coverage and a tax liability in the year of lapse.Lenox Advisors, Inc. (Lenox) is a wholly owned subsidiary of NFP Corp. (NFP), a financial services holding company, New York, NY. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 90 Park Ave, 17th Floor, New York, NY 10016, 212.536.6000. CRN202510-3187315