How to Use Whole Life Insurance to Pay For College

The life insurance industry has openly discussed how to use whole life insurance to pay for college for a long time.

All right we’re live hey there thanks for tuning in to another live broadcast from the insurance program i’m brantley whitley the other guide that you will see in a moment when he speaks or makes a noise is brandon roberts and if you’ve watched our lives for any length of time you’ll notice that a little different background trying to get closer to the source of

Internet lifeblood in my house to see if we can stop the robotic talking thing everyone thinks that i talk like a robot because my internet freezes every 10 seconds or so but today we’re gonna talk about an excuse me for being a little flustered today i literally just carried everything downstairs and set it up here in my kitchen so about i don’t know two three

Minutes ago so today we’re gonna talk about how do you brandon what’s the what are we talking about we’re talkin surance to pay for college how to use whole life insurance to pay for college i got to get get that term right i guess i’ll let you carry it away since since you seem to have much to say about the time and i didn’t i didn’t have to uproot everything this

Morning yeah move it to my kitchen well i mean i printed the notes off at least 45 seconds ago okay that’s good that’s good so um this this is a subject that people often hear about and i think causes a lot of questioning how do you use whole life insurance to pay for college and and in many respects there’s really nothing special that has to be done um you can own

Any whole life insurance policy and you can use it to pay for college right um so if you own a policy that’s maybe decades old that was bought by your parents for you and you’ve just had it for a long time and it’s got some sum of cash in it you could technically if you wanted to start to take money out of that policy either through withdrawals or loans and use it

To pay for college um but but that being said there’s a whole different realm of this idea that is involving people who specifically buy whole life insurance with the intention of using it to pay for college for their children right and that’s more what we want to focus on today but you should understand coming out of this that anybody who owns whole life insurance

No matter when they bought it no matter how old it is no matter what type of whole life it is good as long as it’s got cash value be used to pay for some or all of college i’m depending on how much cash value that’s in it and this i mean this has been a hot idea in the life insurance industry since before i started twenty years ago so i’m sure this has been going

On for a long time right it has been and there’s there’s there’s various attractive benefits to using life insurance as a means to pay for college the chief one is that life insurance cash values are not currently included in most expected family contribution calculations that most universities do public ones for sure because they all use the fafsa private ones

May differ a little bit but for the most part if you do financial aid right correct correct if you accumulate cash inside a life insurance policy you do not have to include that cash value in the calculations that determine whether or not you will be eligible for financial aid right okay now we have established i think i remember the number i’m just gonna make

Sure five that’s correct five best practices that we want to encourage if somebody is going to use whole life insurance to pay for college okay we’re gonna run down the five right the very first one is when you buy whole life insurance with the purpose of using it to fund college or pay for college expenses you do absolutely want a whole life policy that’s focused

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On cash value accumulation seems fairly straightforward but there’s a little bit of trickiness to this life insurance policies don’t come labeled ready to build cash value so you need to kind of understand with my whole life policy is designed that way and the best rule of thumb i can give you the most quickest way to determine if you’ve got something that it’s

At least in the neighborhood is how much of the premium that you pay is just regular base whole life insurance how much of that do you see going towards what we call the paid up editions writer right if you see a good portion of that premium going towards the paid up editions rider chances are pretty good you’re on the right track now beyond that there are some

Additional quarks the whole life insurance but we don’t really have the ability to impart all that knowledge on you now and my best advice is that you should seek out some professional who can help you ascertain if the whole life policy you own is truly best for the purpose of accumulating cash value right because there’s no there’s no off the shelf of this policy

Is designed to help you be able to pay for your kids college in 18 years i mean that’s that’s correct they don’t come with that sort of label that’s correct so number two on our best practices list is and this one this one stumbles a lot of people the parents not the child should be the insured on the policy right we’ve run in don’t countless circumstances where

Somebody says i want to use whole life insurance to pay for college and i want to buy a policy on my kid to do that and mmin the world of association this makes a lot of sense it’s for them there it’s gonna pay for their college why don’t they be the insured but i promise you from a planning perspective that leaves you very susceptible to some very big risks chief

Among them is that you die before your child reaches the age that they start attending college you spoiled the punch line i was gonna i was gonna toss that one up for you yeah if the parent and more specifically if there’s a primary breadwinning parent that parent is the insured under the policy and that parent happens to pass away before the child enters college

Now the college funding dilemma is solved the death benefit takes care of that for you exactly um now there are so we’re sure that that’s not how what most people had in mind when they were thinking of using a whole life insurance policy to pay for college they weren’t thinking well i’d died and it’ll work out perfectly right yes yes i mean that’s that’s that’s

Usually a level of thinking that only weirdos like you and i think about so it’s it’s not something that most people are really sitting at home contemplating on a daily basis case scenario is that i’ve died and then my kids college is taken care of so yes this is this is not helping normal people think us that’s for sure number three on our list right is the fact

That you can implement a policy that is absolutely designed to be paid up requiring no future premiums by the time your child’s entering college okay you do not have to do this but understand it is an option on the table you’re just saying you can but you don’t have to so do not take any don’t take any blanket advice on this to say that it absolutely has to happen

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That way or absolutely shouldn’t happen that way understand that there’s a great degree of flexibility with whole life insurance that’s what makes it so wonderful and so you can make it paid up or requiring no future premium payments once once the child goes to college and you start using the policy’s cash value to pay for college expenses but if your circumstances

Allow you to continue to fund the policy we can absolutely build something that accommodates that and whole life insurances is very versatile in that sense you just you just said two controversial statements you said that whole life insurance is really flexible and versatile i did know sir those are not not things and people usually say about whole life insurance

Well i know a lot more about whole life insurance and okay all right so now that i spent some time talking about how great whole life insurance is let me tell you about how not great it is if you are coming to this a little late to the game yes child’s already in high school you’re starting to plot out college and figuring out how to pay for it now it’s time to

Get serious and save some money whole life insurance is not your it’s not the horse for this one okay i wouldnt place bets on it it it it takes some years for whole life insurance to return positive cash value on the premiums paid and so if you don’t have enough time for that to materialize whole life insurance is probably not going to be the best option for you

So if if you’ve only got a few years before your child enters college there are other options to start saving money that are most likely going to be better options than life insurance will be okay well brandon i’m not sure if you’re still there but you you seem to disappeared from view well that was uh oh now now i’m here alone so i’m gonna wrap this up we’ve

Gone over the five the top five reasons that you might consider using whole life insurance or using whole life insurance to pay for your kids college looking down at the notes to make sure that brandon covered everything he wanted to cover there and i think so but the biggest balancing act is going to be you can definitely use whole life insurance to pay for your

Child’s college or to pay your grandchild’s college or whatever but the biggest takeaway is you’re probably going to need to spend a little bit of time on that um you also i think the last point that brandon wanted to make was that you probably don’t want to intentionally create a modified endowment contract that was his fifth point that would not be ideal in that

Situation there are a lot of tax issues that come along with that and it sort of hems you in i’m not saying that it’s the worst thing you could possibly do but it sort of hems you in long term in terms of the tax implications for you down the road so we wouldn’t recommend that that would be one of the the best priorities it looks like we’ve gotten brandon back are

You back worked okay i was uh i was ad libbing i started going over point number five which was the point about not creating a mech right so when it comes to to using life insurance whole life insurance to pay for college it would be highly advisable that it not be a modified endowment contract right um that’s not an absolute on the table always sorta i said you

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Just sort of him yourself in long term if you make that choice to do that it creates some tax consequences that may not be favorable yeah you you limit your options once you do that so just be sure that if that’s the road you go down that you understand exactly what your exit strategy is and and for many people who have a modified endowment contract or an exit

Strategy as they die that’s yes yes unfortunately so again whole life insurance is largely more flexible than people give it credit for and it can accommodate a lot of different circumstances and in fact using whole life insurance to pay for college can create a circumstance or the the owner to maximize what benefits cashwise whole life insurance has to offer

And create future funds attack future financial goals like retirement income planning in a way that really optimizes rate of return in a way that is hard to achieve with other other asset classes right and the you know one of the things we’ve talked about before and we won’t get deep into it today but the ability to use whole life insurance to pay for college also

Allows for people like me who have kids that are headed in that direction to have other options for myself long term in that i can borrow from the policy i can pay the policy back and i haven’t completely derailed all of my future retirement income planning needs and and i realized that’s beyond the scope but it does wouldn’t it be nice if somebody would create a

Resource that someone could could get and learn all about this yeah you know it’s really interesting because someone has really tell me more if you go over to ipb you can learn more about our book and the awesome bonuses that were given away with our book predictable profits and we talk in particular about this strategy as one of the ways that you can use

Whole life insurance do we know we do indeed we do indeed i there’s there is a i can’t remember an entire chapter dedicated to it but it’s a very specific section yes and it is i think most people find it quite quite interesting yeah because because it involves we actually go through a real-world scenario where we go through some numbers and show you how it works

And and how you can use whole life insurance to pay for college without derailing all of your future financial goals i guess you would say as a parent who’s looking who’s staring down the barrel of some kids that are going to college in relatively short order i can tell you it is the type of expense that can certainly derail all of your other future financial

Planning needs it is indeed yep all right well let’s wrap it up there brandon yeah we’re good okay that’s everything there is to know about using whole life insurance to pay for college yep thanks for thanks for tuning in today thanks for checking out the insurance prologue com you should always head over there and find out what we’re publishing on the blog you

Can hear our podcasts there’s as we’ve been told by many people they spent months coming through and reading all the stuff that’s there there’s you know six or seven years worth of posts there and with any luck we’ll be back tomorrow if my internet decides that it’s going to cooperate thanks for tuning in and we hope to see you soon

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