Why Life Insurance Can Be a Smart Strategy for College Funding

Every parent wants to give their child the best possible start in life — and for many, that includes helping pay for college. But with rising tuition costs and uncertainty around financial aid, families are increasingly looking for flexible, reliable strategies to fund education.

One option that is often overlooked: using permanent life insurance as part of a college funding strategy.

While most people think of life insurance only as a tool to protect loved ones, certain types of permanent life insurance offer a unique combination of benefits that can also support long-term financial goals — including saving for college.

Let’s explore why life insurance may be a valuable addition to a college funding plan.

Key Advantages of Using Life Insurance for College Funding

1. Immediate Protection for Your Family

From the moment a policy is issued, the insured person is covered with a death benefit.If something unexpected happens, life insurance can:

• Help pay for final expenses

• Provide funds for ongoing living costs

• Protect college plans by supplying money when it’s needed most

With life insurance, protection begins right away — unlike other savings vehicles that take years to build meaningful value.

2. The Parent Retains Control

With permanent life insurance, the policy owner (usually the parent) controls how and when the cash value is used.

Unlike some education-specific accounts, such as a 529 plan:

• Funds are not restricted to education.

• If plans change, the accumulated cash value can be used for anything — home purchase, business investment, emergencies — without penalties.

Life changes, and permanent life insurance gives you the flexibility to adapt.

3. Tax-Free Death Benefit

When the insured person passes away, the death benefit typically transfers to the beneficiary income tax-free.¹

That means the full amount can be used for education expenses, living costs, or anything the family needs — without tax erosion.

4. Tax-Efficient Access to Cash Value

Permanent life insurance builds cash value over time.This value can be accessed to help pay for college through:

• Withdrawals, or

• Policy loans

When structured properly and as long as the policy is not classified as a modified endowment contract (MEC),² these withdrawals and loans may be accessed tax-free.

This gives parents the freedom to use funds when they need them — without worrying about triggering taxes or penalties for early access.

5. Acts as a Diversification Strategy

Most college funding plans rely on traditional investment accounts, which may be influenced by market volatility.

Permanent life insurance provides:

• A financial asset not tied to stock market performance

• A way to diversify savings and reduce risk exposure

• More certainty around available funds

While market-based accounts grow with market performance, life insurance offers stability and predictability.

6. Tax-Deferred Growth

Any cash value that accumulates inside the policy grows tax-deferred.³That means the cash value is not taxed annually like many investment accounts.

Tax-deferred growth allows your money to potentially grow more efficiently over time — and can be tapped later for funding college or other needs.

 Things to Consider

Life insurance is just one tool in a college funding plan. Other options include:

• 529 college savings plans

• Custodial accounts (UGMA / UTMA)

• Grants, scholarships, and financial aid

The right strategy depends on:

• Your financial goals

• Your tax situation

• How much flexibility you want over how the money is used

Working with a financial professional can help you evaluate what makes the most sense for your family.

Final Thoughts

Life insurance offers something unique:protection, flexibility, tax advantages, and long-term value — all in one policy.

For families looking to:

• Save for college,

• Keep control over how funds are used, and

• Ensure financial security along the way,

Permanent life insurance can be an incredibly powerful strategy.

It’s not just about paying for college —it’s about protecting the future from every angle.

Footnotes:

1. Life insurance death benefits are generally received income tax-free under current tax law.

2. Accessing cash value through withdrawals or loans may reduce the death benefit and could cause the policy to lapse if not properly managed.

3. Tax laws are subject to change. Consult a tax professional regarding your specific situation.