Friday, July 28, 2017

Whole Life Insurance or 529 Plans - The Choice for Funding a College Education

Whole life insurance is the workhorse of the insurance industry. It is designed to be in force throughout the life of the policyholder with the premium never changing.

It has often been compared to buying a home with a 30 year fixed rate mortgage where your monthly note containing your principal and interest never change throughout the life of the mortgage all the while your home equity is building up. 

Similarly, all the while your whole life policy is in force, your cash value is building up tax-free.

529 plans are best described as a way for parents to save money for tuition in a tax-deferred account. The state income tax break together with not having to pay federal income tax on your earnings have made these financial instruments attractive to some parents and grandparents.

Know the 529 Tax Deductions
However, given this current economic climate, some states may begin to restrict qualifications for the tax breaks by limiting the amount that you can claim as a tax deduction. 

You need to closely monitor the tax laws relative to this issue in your state. In addition, with returns on managed funds and FDIC insured plans being historically low, you simply may not get the value that you were promised.

The Difference Between a Whole Life Plan and a 529 Plan
Now contrast a whole life insurance plan with a 529 plan. As earlier mentioned, the growth in the cash value feature of the whole life insurance plan is guaranteed and builds up tax-free. 

And, because it is in the private sector, it is not subject to the whims of the politicians who not only decide who manages your funds but also how much you can declare as a tax deduction.

But, even more importantly, it must be emphasized that permanent whole life insurance is an asset that is guaranteed to grow each year as long as you continue to pay your premiums. It is not a commodity purchase with fluctuating returns.

529 Plans Can Lose Value
While many assets lost as much as 50% during the recessionary period, permanent whole life insurance has continued to grow. Therefore, in choosing a whole life plan, choose the largest face amount that you can afford. For unlike a 529 plan, a whole life insurance plan is self completing if you should die before your children are old enough to begin college. 

And, if you become seriously ill or disabled, with waiver of premium as a part of your policy, your premium will be paid for you.

So in choosing a permanent whole life insurance plan, you have a guaranteed, tax-free cash buildup, a face amount that would be paid to your beneficiaries if you should experience a premature death, and, if you become seriously ill or disabled the company would pay your premiums for you.

Which choice gives you the greatest piece of mind? Leave your comments below. Also, if you are in Illinois, call (773) 614-3201 for help in choosing the best Whole Life plan for you needs.

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