Plan Now for your Children's College Education

An advisor for college whose role is to help parents and grandparents to save money for your youngsters’ education should focus on at least two areas: 529 plans and life insurance.

529 plans were conceived as an opportunity for parents and grandparents to save money for their children or grandchildren’s college education. 

They were created by Congress in 1996 to be offered by each state.

The number 529 reflects the section of the IRS code. It offers a chance for these funds to be put into investment vehicles (including stocks and bonds) in which the returns on the investment can be realized free of federal income taxes. If allowed by your state, your investments may be deductible from your state income taxes.

529 Plans
In that 529 plans are an investment decision, the return on your investment is subjected to the vagaries  of  the stock market cycles. In recent years returns on many of these investments have been non-existent or negative. Such a situation can easily jeopardize your youngster’s college education.

While 529 plans remain a viable option for concerned family members, what’s often not taken into consideration is what if the parent or grandparent meets an untimely death. At that point the contribution comes to an abrupt halt although the costs of a college education continue to rise faster than the rate of inflation. 

If a 529 plan is chosen, then a life insurance plan covering the contributor to the 529 plan is essential. Either a whole life plan or a universal life insurance plan would be appropriate. A term life plan should not be chosen. It offers no cash build up and it’s just limited to a specific number of years.

Whole Life and Universal Life Insurance Plans
Both a whole life plan and a universal life plan offer a tax-free build-up and will not count against the assets evaluated in determining the student’s college financing package. An equally important feature and perhaps the most important, is the death benefit. If the contributor dies prematurely, then their effort to provide for the youngster’s college education would be self-completing.

If you as a parent want to build up a college education fund for your children and have a hundred dollars to invest monthly, it would make sense to invest $25 a month in your 529 Plan and $75 per month your whole life insurance plan. The choice is yours. The return on your $25 per month is totally uncertain, that includes both you principal and your interest. 

All whole life plans which I am familiar with offers you both a guaranteed return and a non-guaranteed return plus the death benefit which would go to your child in the event of an untimely death. 

Keep in mind that the 529 plan has no death benefit, and is therefore, not self-completing.

Are you concerned about college educational planning for your child or grandchild? Leave your questions below.

Whole life, Universal Life, or Term - How to Decide What's Best for You

A whole life insurance policy covers you for your entire life. Your death benefit and premium in most cases remain the same. 

Whole life also builds cash value, which is a return on a portion of your premiums that the insurance company invests. This tax-deferred cash value can be borrowed to help finance your children's education and is self-completing if either parent unfortunately experience an untimely death. 

Whole Life
A whole life insurance policy may be used as a part of your estate planning. Consequently, whole life insurance is a good choice for you if you want to ensure that you have a life insurance policy in place for your entire lifetime and can comfortably afford the premiums, 

While whole life insurance is designed to provide coverage on the insured for the insured's entire life as long as the premiums are paid and the policy has not been surrendered, 

Universal Life
Universal life is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element, like whole life insurance, which is invested to provide a cash value buildup. 

The death benefit, savings element and premiums, can be reviewed and altered as a policyholder's circumstances change. 

In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.

Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. 

Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing the policy owner to make adjustments based on their individual circumstances. 

For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums.

Universal Life and Whole Life Compared
Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly. As an example, the Indexed Universal Life may base the performance of its cash values on one of several indices, including the S & P 500 or the Dow Jones Industrial Averages. 

Moreover while it provides an opportunity for growth, it has guaranteed returns and provides considerable stability. In that it provides both growth potential and a safety net, it is excellent for college planning or retirement supplemental planning.

Term Life

Term life insurance provides coverage only for a fixed period 10, 15, 20, or 30 years, as stated in the policy. And, it has no cash build up. While it can be extremely affordable for a person in good health up to the age of fifty. After that age, the premiums start to get progressively more expensive. 

Term should be purchased if you only need insurance for a specific period of time, such as if you want an outstanding fifteen or thirty year mortgage balance paid off in the event of an untimely death.

Any comments on the needs for  life insurance? Leave them below. If you need a quote, call (773) 614-3201.

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.