How to Use Life Insurance for Your Children’s Education Many parents are often faced with the financial duty of planning for their children’s education, and they tend to look into different investment and savings opportunities. Using life insurance as a useful tool to safeguard your children’s future education is one tactic that can be utilized by parents. Parents often look out for the best in their children, and that includes giving them the right education possible.
Although the main purpose of life insurance is to protect the beneficiaries financially in the event of the death of the policyholder, it can also be a useful tool for covering the cost of your children’s education. If you are wondering how the proceeds from your life insurance can be used for your children’s education, read along.
In this article, we will highlight ways that life insurance can be used to fund your children’s education. With the wealth of information we have curated, parents can provide a more stable financial basis for their children’s school needs.
Exploring the Advantages of Life Insurance
As education costs continue to skyrocket daily, most insurance companies allow policyholders to use part of their life insurance policy to cover the educational expenses of their children.
Life insurance is a lifesaver for policyholders who need financial assistance for the higher learning of their children. Most people think life insurance is beneficial only after the death of the policyholder. But allow me to dispel this belief because even while you are still alive, you and enjoy certain perks of having a life insurance policy.
Life insurance can be used for tuition fees when you are sending your child to a college or an accredited university. The cost of textbooks, living costs, and other related expenses can strain your budget. In a situation like this, you can run to your insurance company to inquire about how to disburse some of your insurance benefits for your child’s education.
How to Use Life Insurance for Your Children’s Education
Life insurance features a cash value component that accumulates funds over time. The cash value on your life insurance policy can be utilized to cover the educational expenses of your child.
You can have access to a substantial amount of money through the cash value component. This is provided you invested in the policy early enough, such as when your children are still young. Investing early in life insurance guarantees that the total amount of money you get from the policy will be sufficient for your child’s education.
Let’s say you’re buying a whole life insurance policy when your child is much younger. Before your child finishes high school and attains the age of going to college. The cash value of your policy would have grown significantly. You can then reach out to your insurer and request to borrow against your cash value for your child’s education.
Downsides of Using Life Insurance for Your Children’s Education
Life insurance as a strategic tool for educational purposes may not be an ideal option for everyone. What works perfectly for Mr. A may not be the case for Mr. B. In essence, using life insurance for children’s education may not be suitable for everyone. As there are disadvantages attached to it. Let us consider some of them:
Higher Premiums:
Using life insurance for your children’s educational expenses and living costs can increase your premiums. The cost of premiums for maintaining your policy may increase drastically. This is when you begin to use your cash value to cater to the educational needs of your children.
Annual Fees:
Most life insurance policy premiums may be difficult to meet due to the high annual fees most insurers charge.
Tax Impact:
For every cash you withdraw or borrow against your policy that is beyond the premiums you’ve paid. There is a tax implication attached. This is simply because the amount of money you withdraw from is mostly treated as income. Hence, it is subject to being taxed.
Reduction in Death Benefit:
There is no doubt that if you take out a policy loan or withdraw from your policy. It would automatically reduce the death benefit that would be given to your beneficiaries in the event of your passing.
Furthermore, the cash value of a life insurance policy does not grow rapidly. You may need to wait for a longer period, probably a decade or more, to utilize the momentary benefits of your policy. Although life insurance offers flexibility and financial security. It is important to consider the disadvantages of using it for your children’s education.
Get Professional Advice
We understand the struggle of sponsoring a child to school to fulfill his or her academic dreams and aspirations. If you are considering using your life insurance as a financial aid for your children’s needs, we recommend working with a financial advisor.
They are in the best position to provide valuable insights that would help you navigate the complexities of life insurance better. It is also possible that they have other options you can explore to take care of your children’s education expenses.
Above all, leveraging life insurance as a tool for funding your children’s educational costs offers priceless peace of mind and financial stability for parents. As you consider this option, endeavor to evaluate your family’s financial situation and future goals. This would ultimately help you make informed choices that would provide support to your children’s educational journey for years to come.