Funding College Education with Whole Life Insurance – The Only Real Choice for a Single Parent

Funding a college education at the rate that tuitions continue to rise can be extremely difficult for a single parent.  For example, in Illinois the range for in-state 2010-2011 tuition and fees for a state University such as the University of Illinois at Champaign-Urbana is $13,640 while the tuition for private university such as Northwestern University is $40,247.  Other educational institutions in Illinois may have tuitions that maybe a few thousand dollars more or less.  Each educational institution has to be evaluated on their own merits.  Moreover a two-year junior college may be an option for the first two years. Or even forgetting the liberal arts universities altogether and choosing a technical or trade college maybe even the best option depending on your child’s aptitude and interests.

Nevertheless, as a single parent you need to prepare to meet at least some of the cost of financing your child education. And, because your child is clearly dependent upon you, the value of life insurance is a must for consideration.

There are three major types of life insurance to consider: Whole life, Term, and Universal life.  Whole Life offers a death benefit, tax-free guaranteed cash buildup, an opportunity to borrow money without any requirements, and proceeds distributed tax-free. Term provides for a larger face amount for the same premium but only for 10, 20, or 30 years. Some term plans allow for return of premium at the end of the time period which may be a good option to consider.  Universal life is essentially a hybrid that encompasses the best features of whole life and term, is interest-rate sensitive, has a guaranteed cash value, and allows for flexibility in premium payment.

Here is an example of a whole life cash buildup of for a 38-year-old woman with a four-year old. For a monthly premium of $97.06, a major life insurance company here in Illinois will provide a death benefit of $100,000 and $12,471 in cash value in 14 years. She can borrow this money without having to meet any qualifications and never pay it back if she chooses not to. The amount borrowed would just be deducted from her death benefit. While this loan will not fully fund the child’s education, it would cover some significant expenses and would be self-completing by paying the beneficiary $100,000 if she passes away before the child reaches college age.

The other option which allows you to contribute to your child education is a 529 plan. However, this is considered an investment decision with both the benefits and drawbacks and no guarantees.  Furthermore, as this is just an investment plan, it is not self-completing in the event of an untimely death.

All things considered a whole life insurance plan should be your major vehicle for funding your child education.  If you chose a 529 plan to augment it, do your homework and choose very carefully.

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