College Funding – Paying for Your Child’s Education

The potential to earn a decent living is greatly enhanced by earning a bachelors degree or higher. Those who have it will most likely flourish and those who don’t…

To attend an in-state public college for the 2012-13 academic year, the average overall cost (or “sticker price”) for students who don’t receive any financial aid rose 3.8% to a record $22,261, according to a October 2012 college board report. Tuition accounted for about half of that increase. Public university tuition and fees alone rose 4.8% to $8,655. In addition, higher dorm, cafeteria, books and other expenses added significantly to the overall increase.

Over the years college tuition costs have grown to new heights.

10 yr college cost increase

While about two-thirds of full-time students receive grants or federal tax breaks, many are likely to have to foot more of the bill themselves.

What parent wouldn’t want to see “PAID IN FULL” stamped across their child’s college tuition bill? An insurance professional can help you plan for your child’s education expenses.

College costs are on the rise and are expected to continue climbing. For instance, for a baby born today, the costs will be more than three times current rates when they enroll in college.1

Life Insurance Can be Key
Life insurance can be vital in helping fund your child’s education – whether you’re there or not. Life insurance offers certain tax advantages. In the event of your death, your family can choose to use the income tax-free death benefit to pay education costs. And with some types of life insurance, you can take loans against your policy without tax penalties.2

Be sure to take into account these additional features that may be available with certain types of life insurance:

• Guaranteed cash value, so you know a certain amount of money is available
• Access to your money, so you can use it for tuition and other educational expenses
• Premium waivers due to disability 3

Does Insurance Count as an Asset on Financial Aid?
Cash-value life insurance does not affect federal financial aid eligibility.
Financial aid is available for students who demonstrate financial need in the form of federal Pell grants. Qualifications for financial aid depend not only on household income, but financial assets as well. The U.S. Department of Education considers most cash, savings and investments as assets, but insurance policies typically have no influence on financial aid eligibility.

Insurance policies do not count as assets for federal financial aid purposes even if they carry cash value. While term life insurance, health insurance and other insurance policies usually have no cash value, many whole life insurance policies gain value over time. Policy-owners gain cash value in these types of insurance policies, but regardless of the ‘cash-in’ value of a permanent life insurance plan, insurance policies are not countable assets with regard to federal financial aid.

Considering Term vs. Permanent Insurance
If you simply need to pay for your child’s college expenses in the event of your unexpected death, consider term life insurance. Choose the length of time you need coverage and the amount of death benefit you need.

Talk with your AIPS financial representative about how you may be able to use permanent life insurance to help with college expenses. You may be able to take withdrawals or loans against the policy’s cash value, which can continue to grow tax-deferred.

1 U.S. Bureau of Labor Statistics and FinAid.org

2 Assumes the contract qualifies as life insurance under section 7702 of the Internal Revenue Code (IRC) and is not a modified endowment contract (MEC) under section 7702A. Most distributions are taxed on a first-in/first-out basis as long as the contract meets non-MEC definitions under section 7702A. Loans and partial withdrawals from a MEC will generally be taxable and, if taken prior to age 59½, may be subject to a 10% tax penalty.

3 Disability waiver of premium qualification is not guaranteed and is subject to availability by carrier. The waiver of premium rider may be included in any life insurance policy you choose to purchase. It simply states that in the event you become disabled while you own your policy…as long as you are disabled for a minimum of 6 months…the life insurance company will waive your premiums for as long as your disability continues or in some cases to age 65.

Feel welcome to contact us for a complimentary review of your personal situation. AIPS does not provide legal or tax advice, please consult your tax and legal advisors regarding your individual situation.

Posted by Troy Barrow, LUTCF – Troy is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or tbarrow@aipsny.com.

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