How Clients can Supplement College Funding Using Life Insurance
Fixed index universal life insurance (FIUL) can be a valuable product for the middle market, especially when it comes to paying for college
College is expensive. It costs tens of thousands of dollars each year to attend a four-year college or university. And the costs continue to rise. Clients could incorporate a fixed index universal life (FIUL) policy into their college financing strategy to help pay for the cost of higher education.
While many people buy life insurance to provide their loved ones with a death benefit that is generally paid income-tax-free to beneficiaries, there are other ways the policies can be useful to clients. With the accumulation potential of FIUL insurance, the policy’s accumulation value has the potential to build over time. The cash value of the policy can be accessed through policy loans or withdrawals,1 which can be used to help pay for college tuition.
1 Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.