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By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at Partners Advantage Insurance Services, LLCCurrently college costs are substantial enough to have the potential to compromise the parent’s retirement plans or produce burdensome debt for the college student. The costs can range from $100,000 for some local state supported universities to $280,000 for many prestigious private schools. Most parents with pre college age students range in age from 40 to 60 years old. They are concerned with how much college will cost. They are unsure of how much government aid they will receive. Some have set money aside in a 529 plan, State tax free college bonds, or a prepaid tuition plan. Many have done little planning.
Determining college costs is easier than in the past. There a number on online calculators which are even college specific and that can pin down the cost for the student’s intended school. These calculators also have the ability to consider the effect of inflation on costs for students with a number of years before they reach college age.
Families that need help with college planning typically fall into two categories. Families that have five or ten years to plan and families whose children are on the doorstep of entering college. Each of these situations requires a different financial approach.
For younger families there are few assets that have the flexibility and tax advantages of cash value life insurance. All of the alternatives mentioned before have limitations on when and for what purpose the money can be used. The cash value of life insurance can be used at any time for any purpose even if the student does not decide to go to a university.
This is a typical example and summary of college costs and timing for a younger family. State: CA, Husband age 53,Spouse age 49, Son age 12, Daughter age 10.The family’s desire is to send both to a four year college in CA (public) They would like to have the cash to do this and a protective element in case one or both spouses die early. Projected yearly costs:
Wife
|
Husband
|
Son
|
Daughter
|
Pomona
|
Long Beach
|
Yearly Total
|
49
|
53
|
12
|
10
|
|||
50
|
54
|
13
|
11
|
|||
51
|
55
|
14
|
12
|
|||
52
|
56
|
15
|
13
|
|||
53
|
57
|
16
|
14
|
|||
54
|
58
|
17
|
15
|
|||
55
|
59
|
18
|
16
|
31725
|
31725
|
|
56
|
60
|
19
|
17
|
32677
|
32677
|
|
57
|
61
|
20
|
18
|
33658
|
28840
|
62498
|
58
|
62
|
21
|
19
|
34667
|
29705
|
64372
|
59
|
63
|
22
|
20
|
30596
|
30596
|
|
60
|
64
|
23
|
21
|
31514
|
31514
|
|
61
|
65
|
24
|
22
|
|||
62
|
66
|
25
|
23
|
http://www.finaid.org/calculators/scripts/costprojector.cgi, http://money.cnn.com/tools/collegecost/collegecost.html
This sample illustration shows how a well-designed Indexed Universal Life policy can in just six years develop enough tax free income to complete both students higher education. Most importantly the solution is self-completing, meaning that even if the insured breadwinner dies early the tax free funds are available to complete the plan.
Information provided by Allianz Life Insurance Company of North America. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit.
The just in time family has very different objectives. They have already accumulated assets. The husband and wife are in their 50’s their daughter is 17. Their primary concern is securing government support for daughter’s education. They have $750,000 in various banks and assets. Their daughter would like to attend UCLA. They will need some of this cash to be liquid to cover costs over and above grants and scholarships.
With their current asset positioning the family will not qualify for financial aid. When they complete the FAFSA form to apply for support they will need to declare the $750,000. Assets in life insurance are not included for FAFSA so the family could qualify for aid if the assets were repositioned into a life insurance policy. The following example illustrates the potential for growth, liquidity, and tax efficiency of this solution.
Information provided by North American Company for Life and Health. This is a Modified Endowment Contract, loans and distributions are subject to tax and penalties if the client is under age 59 1/2.
Permanent life insurance is not only a great cash accumulation vehicle for college planning. It is also a great way to reposition assets to provide a competitive return, tax deferred growth, and exclusion FAFSA consideration. These factors taken together can help consumers college planning and retirement outcomes.
Call Bill Jackson J.D. CLU, Senior Advanced Markets Consultant if you have a case you would like to discuss or would like added information on: 888-251-5525, ext. 361.
For financial professional use only. Not for use with consumers.
This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success.
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