Using Index Universal Life Insurance For Kids’ College Savings
Index universal life insurance can be used as a tool to save for your child’s college tuition. Many parents are turning to IUL policies as a beneficial way to save for their children’s education.
Index Universal Life is often misunderstood, click here to learn about common IUL misconceptions
What is the children’s Index Universal Life Policy?
Children Index Universal Life is a type of permanent life insurance that allows you to invest in your child’s future.
How does the children’s Index Universal Life Policy work?
You set up a policy for your child and start paying premiums. Part of your premiums goes toward life insurance and a huge part of your premium goes into the cash value component of your IUL policy. The premium in your cash value is invested and earns returns similar to those found in the stock market. This investment vehicle grows your money with safety (meaning you will not partake in the market downturns) and your withdrawals or loans are tax-free.
Unlike other popularly known college savings options, your child doesn’t have to earn any income. Children as early as two weeks old can qualify for an IUL policy.
Benefits of Indexed Universal Life Insurance
The gains can be accessed through loans or withdrawals without incurring a penalty, so long as you don’t exceed established limits. Although, there may be a minimum withdrawal limit and the total amount of your policy’s cash value will decrease. The benefits occur through long-term compounding but if you do need to access the cash value, you can do so without any penalties.
Additionally, IULs can be a great way to save for college expenses. The way this works is that the cash value of the policy grows is tax-deferred and can be used to pay for college tuition. The funds are accessed through withdrawals or loans, and any gains earned are not taxed.
Imagine contributing to your IUL early in a child’s life. Not only will compounding increase the total value of the policy, but the premiums paid can be used to help pay for college tuition. Setting up an IUL can be a great way to give your child the means to pursue higher education without creating debt.
If your children are not pursuing post-secondary education, The cash value can be used to purchase their first home, or car, start a business, or anything you like. With the life insurance policy attached to the IUL, your child is insured for their entire life at the same rate through adulthood. This gives you peace of mind that your child is covered. Nothing to worry about if they develop health issues and can’t qualify for life insurance. It’s a double benefit in one.
Advantages of Using children Index Universal Life Insurance For Kids’ College Savings
The following advantages should not be ignored. The average student loan debt in America was $37,358 back in 2022. You can prevent this burden on your child by using some of the advantages of an IUL policy.
Tax Advantages:
An IUL policy allows you to save funds for college in a tax-free vehicle. The money is invested tax-deferred and grows to depend on market performance. All withdrawals from the account are tax-free, making this an attractive option for college savings.
Flexibility:
IUL policies also provide flexibility when it comes to investing. You can customize your policy to meet the needs of your family and can adjust the policy as needed. You also have more options with an IUL policy than you do with a 529 plan.
Children’s IUL is cheap
Because kids are not expected to die any time soon, the cost of insurance is very low. So a huge part of your premium goes into the cash value component of your IUL policy.
Financial aid or scholarships
IUL doesn’t reduce benefits or stop your child from getting approved for Financial aid or scholarship for their college education. This is a unique feature of IUL policies, your investment in your child’s IUL Policy doesn’t stop your child from getting financial aid, grant, or scholarship. This investment is not reported to Federal Student Aid (FAFSA)
Generous Contributions:
With an IUL policy, you can make large contributions over a long period of time. This can be helpful if you need to save a large sum of money for college tuition. Some school programs require nearly a decade’s worth of time, so being able to make large contributions to the policy can be beneficial.
Potential Higher Returns:
With the right investment strategy, policyholders can potentially realize higher returns than they would with a traditional savings account. The rates of return are not guaranteed, but if you have done your research and chosen an appropriate index to invest in, you may be able to get more bang for your buck. This is because the index you invest in may experience higher returns than a traditional savings account.
No earned income requirement:
Unlike other popularly known college savings options, your child doesn’t have to earn any income. Children as early as two weeks old can qualify for an IUL policy.
Protection:
With IUL, your child gets protection with a living benefit (life insurance) at the same rate through adulthood. This means that there is nothing to worry about if they develop any health condition that may disqualify them from getting life insurance in the future. IUL is a form of whole life insurance that covers your child for their entire life.
Disadvantages of Using Index Universal Life Insurance For Kids’ College Savings
Despite the bountiful benefits of an IUL policy, there are some potential downsides that you should be aware of before investing.
Unforeseen Fees:
Firstly, IUL policies are not without their fees. The cost of an indexed universal life policy includes administration fees and miscellaneous charges. While these fees may seem insignificant in comparison to other types of investments, they can add up over time.
Changing Policy Structure:
Furthermore, it is essential to note that while these fees may be disclosed in the policy documents, they can change over time and you may not be aware of them until your next policy review.
Final Thought
It’s very important to plan, by investing in your child’s future you are helping them build a strong financial foundation that will be built on and passed on to the next generation. The money from children IUL can be used to pay for your child’s college tuition, purchase the first car first home, or start a business.
Planning ahead will ensure that you are able to help them without sacrificing your retirement fund. Helping your child avoid student loan debt is one of the things you can do to make their life better and make their future easier. Helping to reduce their financial burden in the future.
Help your child avoid student loan debt. Don’t wait until it’s too late, the sooner you start the better – start planning now!
