When planning for the future, a big concern many clients have is helping their children pay for college. The cost of attending college, including tuition and fees, as well as room and board, has increased at a rate that exceeds the rate of inflation.1
Understandably, many parents would like to keep their children from starting out life deep in debt. CollegeBoard reports that about 60% of students who earned bachelor’s degrees in 2012-13 graduated with debt, borrowing an average of $27,300. Some economists believe that the next financial crisis will be triggered by outstanding student loan debt, which amounts to more than $1.3 trillion.2
Even considering the cost, college can still be a worthwhile investment. According to a report from the San Francisco Federal Reserve, college graduates earn an average of more than $800,000 over their lifetimes compared to high school graduates.3 Even so, many parents might be concerned about the amount of debt it takes to earn that degree. This is where life insurance added to their financial strategy might be able to help your clients help their children.
How Life Insurance Could Help with College Planning
The primary reason to purchase life insurance is for the death benefit protection. Another advantage with life insurance is its potential to build tax-deferred cash value, which, can also be used to help pay for college. Most families need life insurance anyway, and a policy that can help your clients fund college education, on top of providing financial protection in the event of an untimely death, can be an added benefit. Should the child not go to college, the cash value can be used for other needs.
A life policy has no restrictions on how families can use the money, and any interest earned with a life policy, while not guaranteed, is not directly affected by market volatility. Those are two great benefits that make this product a consideration for supplemental college funding purposes.
Structured properly, a policy can play a role in helping your clients fund their children’s college educations. Integrating a life policy, which has the versatility to address more than one need, might help clients achieve their long-term financial goals.
A life insurance policy can be a powerful part of a family’s portfolio when planning for their children’s college education. It can be used in conjunction with other college planning tools, like 529s and Coverdell ESAs, and may help clients reduce the amount of student loan debt their children face as they enter the workplace.