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  • Writer's pictureBrian Litz

Life Insurance as College Funds

You are worried about your children’s ability to go to college-- you should be! College tuition is going through the roof every year. The total amount of student loans in our country at the time of this article is around $1.4 TRILLION! This amount of debt is crippling young people’s ability to start a family, a business, or even move out of their parents’ house. As a parent, we must find the balance for saving for the future and still having the ability to live in the now. Traditional college savings plans have inherent issues that keep us from doing all we can to put money away for them.

The Traditional Plans

There are two types of traditional college savings funds: Prepaid Tuition and Education Savings Plan.

In prepaid tuition, you can purchase credits at a public or in-state university at the current rates. This way of saving for college is a highly attractive way of saving for your child’s future. You can prepay for your child’s future at the current rates, which will save you a lot of money! However, there are some downsides to this as well.

First, there are fees associated with this type of plan. Usually there is an application fee and ongoing administration fees that will cost you money to put this plan in place, but not typically as high as the next plan. The other disadvantage to this plan is that your child is restricted to which college/university they may attend.

The other traditional plan that people have access to is an Education Savings Plan. This plan is usually a tax-deferred or postponed plan. This plan allows for parents to put money back without having to pay taxes on it. This savings plan is put into mutual funds or principal-protected bank products and the products allow for the growth of the funds you put in.

The attractive side to this plan is that you may not have to put as much money in as it earns interest based on the growth of the stock market. The downside to this is your money is the mercy of the market and usually has high fees. These accounts are a little harder to start, so you will have brokerage fees as well as the normal trading fees you pay in a normal tax-deferred savings plan.

Your child will be restricted to which college/university they can attend as well since they are state sponsored. The biggest issue with both plans though is the loss of access to these funds if your child decides college is not for them.

Life Insurance as a College Savings Fund

This may be new to you, but a whole life insurance policy that is set up correctly has many advantages over the traditional college savings plans. You get to decide what the money is for whether your child goes to college or not. You also have access to the funds at anytime for anything you need. This allows you to put more money away without losing access to it.

Here are the main benefits to using whole life to create a college savings fund.

1) College of Your Choice – A whole life insurance policy is not state sponsored you are not restricted to which college your kid can attend. This means if your child wants to go to an out-of-state college, they can.

2) Tax Free Growth – Whole life insurance grows tax free, not tax deferred. This is huge because you don't have to worry about the increasing income tax laws.

3) What if They Do Not Go to College – This may be something that most people don’t think about, but what if your kid decides to not go to college? You can use the policy to help your child start a business or buy a home!

Have you ever wondered why they will give an 18-year-old hundreds of thousands of dollars to go to college, but will not loan them $25,000 to start a business? Mom and Dad to the rescue! Investing in our kids can be one of the most rewarding endeavors we can be blessed with.

4) Your Money is Not Tied Up – Did you know that a traditional college savings fund ties your money up until you're 59 ½ if your child does not go to college? A whole life insurance policy can be accessed at anytime, whether your kid(s) go to college or not.

Also, if you set the policy up on your child from the beginning you can turn it over to them. I do recommend waiting to do this until your child is responsible enough to be smart with the money.

You can now see why a whole life insurance policy can be an amazing alternative to traditional college savings funds. Not only does it provide the necessary funds for your child to go to college, but it also gives you safe guards in case your plans and your child’s plans do not line up.

Go to for more details on how to start!



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