life insurance

How Life Insurance Can Help Fund Your Child’s College Education

April 30, 2024

As parents, you know that setting aside funds for your child’s college education involves strategic financial planning. Yet, with tuition fees continuing to rise, funding a child's college journey can seem daunting. Life insurance can come to the rescue as an unexpected source of funds, helping you save for your child's education in several ways.

The Costs of College

The price of tuition continues to increase, growing 2% annually over the past 10 years. Various expenses, such as textbooks and living costs, further strain budgets. A college education has become increasingly unaffordable for many families.

Projections indicate these costs will continue to rise. Without proper planning, families may have to grapple with substantial debt or sacrifice other financial goals to cover educational expenses. 

Student loan debt has reached unprecedented levels, with more than half of graduates leaving college with repayment obligations.

The financial strain of college can impact families in various ways. Families may delay retirement plans or limit opportunities. Starting comprehensive financial planning early on helps avoid some of these potential pitfalls.

Exploring the Benefits of Life Insurance

Life insurance offers peace of mind to loved ones if the policyholder dies. Its primary purpose is to provide a lump sum payment to beneficiaries. This benefit can cover funeral costs, mortgage payments, and ongoing living expenses.

Unlike term life insurance, which provides coverage for a set period, whole life insurance provides lifelong protection. It covers a person's entire life and includes a cash value element that grows over time. 

The policyholder can use this money through policy loans or withdrawals, providing a source of emergency funds, supplemental retirement income, or college financing.

How Life Insurance Can Fund College Education

Life insurance with a cash value component can be a strategic part of college planning. By investing in a policy early on, families can grow this money over time. They can then take out policy loans or withdrawals to cover college costs.

For instance, if a family purchases a whole life insurance policy when their child is young, the cash value grows significantly by the time the child reaches college age. The child can then borrow against it to help pay for college expenses. This strategy offers flexibility and illustrates the many benefits of life insurance.

Here’s an illustrative example for a hypothetical 24-year-old woman:*  

  • Everyday nonsmoker
  • Product: Whole Life Paid up at Age 100
  • Face amount: $171,764.71
  • Paying $100 monthly

After 20 years, she will have $21,480 in cash value to borrow from, which can help with college costs.

In the event of the premature death of a parent, the life insurance death benefit can be used to offset the cost of tuition.

Factors To Consider When Choosing Life Insurance

Consider several aspects when selecting a life insurance policy for college funding.

  • Coverage amount: Ensure the amount can help with future educational expenses
  • Premium costs: Look for an option that fits your budget while providing necessary coverage
  • Policy term: Determine the length that aligns with your financial goals
  • Flexibility: Evaluate cash value growth and how easy it is to access funds

There is no single strategy that applies to every situation. It’s important to understand the pros and cons of each option.

As you compare policies, examine features such as cash value accumulation and potential for dividends or investment growth. Discuss options with financial advisors and insurance professionals who can clarify complex terms and tailor recommendations.

1891 Financial Life Scholarships

As a member of 1891 Financial Life, you also have access to an exceptional benefit: college scholarships of up to $4,000. These scholarships, along with borrowing funds from your life insurance policy, can alleviate the financial burden of higher education.

School Daze

Although life insurance alone cannot entirely cover college costs, it can be an excellent supplement to 529 funds, grants, scholarships, savings, and other funding sources. Proactive financial planning can help you find the best sources of college financing to cover the cost of a college education.

As you explore your options, we invite you to contact us at 1891 Financial Life. By combining various financial resources like whole life insurance and leveraging the benefits of an 1891 Financial Life member, families can pave a smoother path toward securing their child's educational aspirations.

About 1891 Financial Life

At 1891 Financial Life, we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs. In 2023, 1891 Financial Life was listed by Forbes as one of "The World's Best Life Insurance Companies."

Our portfolio is extensive, ranging from various life insurance policies to our annuities to support your financial needs no matter what stage of life you’re in.

* A rate quote does not constitute a contract, binder, or agreement to extend insurance coverage. All quotes are for illustration purposes; actual premiums and coverage will be based on age, health history, certain underwriting criteria, location, gender, and tobacco usage. Not all products are available in all states. Rates are subject to change. 13WL Plan Series.