The following article was originally published by Christopher P. Hill on Producers eSource:

As college costs continue to rise, having a college degree is more important than ever. According to studies by The College Board in 2016, those with college degrees earn 74% more than high school graduates, experience higher job satisfaction, and have lower unemployment.

For parents like me, college tuition costs can be sizeable. In the same aforementioned study, the cost of one year at a public university averaged more than $20,000 while a year at a private school exceeded $28,000.

Arguably the most popular college savings plan being promoted by financial professionals and utilized by families nationwide is the 529 College Savings Plan (529 Plan). Depending on which state you live in, the features and benefits of these plans can vary. For example, in my home state of Virginia, the only investment option available for 529 Plans is the American Funds. However, in other states investors must choose among different mutual fund companies.

What is a 529 Plan?

The following definition of a 529 Plan was taken directly from American Funds website (www.americanfunds.com):

“Named after Section 529 of the Internal Revenue Code, 529 savings plans provide a tax-advantaged way to save for qualified higher education expenses. These plans are generally sponsored by individual states, while plan assets are professionally managed by independent investment firms or state government agencies.”

529 Plans – Key Features and Benefits

Save for anyone: With a 529 Plan, investors can save for anyone — their child or grandchild, niece or nephew, friend or even themself.

Tax advantages: Earnings in 529 accounts can grow free from federal tax, and withdrawals for qualified higher education expenses are free from federal tax, and some states also allow for a deduction (or credit against) contributions.

Contribution limits: Investors can contribute up to $14,000 ($28,000 for married couples) annually without gift-tax consequences. Under a special election, you can invest up to $70,000 ($140,000 for married couples) at one time by accelerating five years’ worth of investments.

Income limits: There are no income limits, so investors can contribute regardless of how much income they earn.

Investment flexibility and options: Though plans are administered by individual states, investors can choose among many types of investment options, regardless of where they live. These investment options can also be changed, but investment allocation changes can only be done at certain number times and dates on an annual basis.

Control: The investor, as the account owner, rather than the beneficiary, maintains full control of all account assets and determines the timing and amount of distributions.

Beneficiary Options: Investors can change beneficiaries, without penalty, provided the new beneficiary is a member of the previous beneficiary’s family.

Whole Life Insurance for College Savings Plans?

Although rarely discussed as the ideal college savings plan, a solid argument can be made for using whole life insurance versus a 529 Plan. So for argument and illustrative purposes, I will refer to the whole life insurance option as a Whole Life Plan.

Wait a minute. Did I just say that whole life insurance can be a better college savings plan than a 529 Plan? Yes, I absolutely did.

Far too many financial professionals, families, and investors get caught up in focusing on “the name” of their plans and investments. For example, it is traditionally common, popular and acceptable for a retiree to mention that their retirement savings plan is a 401(k) or an IRA, but not so much to say a “Variable Annuity Plan”. Likewise, it is traditionally common, popular and acceptable for parents and grandparents to say their college savings plan is a 529 Plan, but not so much to say a “Whole Life Plan”.

Therefore, rather than focus on “the name” of the college savings plan of choice, the right thing to do is compare and contrast these two options, focusing solely on the facts, features and benefits.

Whole Life Plans – Key Features and Benefits:

Save for anyone: Investors in Whole Life Plan can also save for anyone — their child or grandchild, niece or nephew, friend or even themselves. However, a Whole Life Plan offers the ability to save for any person, regardless of their relationship to you, as well as save for any company, institution, or charity an investor may choose.

Tax advantages: Whole Life Plan cash value earnings also accumulate on a tax-deferred basis and, if managed properly (via withdrawals and/or loans), can be also be withdrawn on a 100% tax-free basis.

Contributions limits: Similar to 529 plans, Whole Life Plans have certain contribution limits, particularly within the first 7 years. However, most Whole Life Plan contribution limits can be structured to exceed the limits of a 529 Plans, and they are also not limited to the $350,000 lifetime limit of a 529 Plan.

Income Limits: Just like 529 Plans, there no income limits, so any investor can contribute regardless of how much income they earn.

Investment Flexibility and Options: Although Whole Life Plans cannot offer investment upside potential, they do offer no downside investment risk. For many investors, the peace of mind associated with safety and guarantees are far more attractive, particularly when saving for a specific time frame and/or goal (such as retirement or college savings). In addition, Whole Life Plans cash values offer more competitive “safe money” interest rates versus alternative fixed-interest rate vehicles (which are contractually guaranteed), as well the potential for annual dividends.

Control: The investor, as the account owner, rather than the beneficiary, maintains full control of Whole Life Plan cash value and determines the timing and amount of distributions.

Beneficiary Options: Similar to a 529 Plan, investors can change Whole Life Plan beneficiaries without penalty, at any time, and for any reason. However, unlike the family beneficiary restrictions of a 529 Plan, a Whole Life Plan allows you to change the beneficiary to any person, institution, and/or charity, as well as choose as many beneficiaries to receive whatever percentage they deem appropriate.

Whole Life Plans – EXTRA Features and Benefits (529 Plans Cannot Offer)

Guaranteed Completion: Arguably the biggest advantage of a Whole Life Plan is the ability to guarantee that an investor’s college savings plan will self-complete under all circumstances.

Death: With a 529 Plan, in the event of a premature death or unexpected disability, an investor’s college savings plan can only offer whatever money has accumulated up that point. However, Whole Life Plans have contractual life insurance guarantees which provide large amounts of wealth to be used for college savings (or any other purpose) in the event of a premature death.

Disability: In the event of an unexpected disability, an investor is very likely to lose their ability to temporarily or permanently continue funding their 529 Plan. However, Whole Life Plans offer the option to add an affordable disability rider which contractual guarantees that, in the event of an unexpected disability, the policy premiums will be made by the insurance company and the cash value will continue to accumulate. (Note: This rider carries a small additional cost as well as age restrictions.)

Unlimited Money Options: If you withdraw money from a 529 Plan for reasons other than specifically for qualified higher educational purposes, your earnings will be subject to federal income tax and possibly a 10% federal tax penalty. However, the cash value in a Whole Life Plans can be used for any purpose whatsoever, whether related to education or not. (For example; joining a fraternity or sorority, buying a car, food, clothing, spending money, etc.) In other words, a Whole Life Plan can essentially be used as “your own bank account”.

No Taxes or Penalties: There are many instances where college saving plans are simply not be needed, wanted, or utilized. For example, children or grandchildren may receive college scholarships, join the military, or simply choose not attend college. Whole Life Plan cash values provide important access and flexibility to change your plans for your college savings at any time, for any reason.

No Financial Aid Restrictions: A robust 529 Plan can negatively impact a student’s chances of tapping into various sources of financial aid. However, another important advantage of a Whole Life Plan is the ability to shelter funds from the federal financial aid methodology via the cash value.

Ownership Change Permitted: Unlike 529 Plans, a Whole Life Plan offers the ability to change the ownership of the policy at any time for any reason. By changing the ownership in a Whole Life Plan, this effective changes both the accumulated cash value as well as the death benefit.

When choosing a college savings plan, our job as financial professionals is to provide education, personalization, and customization. Both 529 Plans and Whole Life Plans are excellent college savings plans, and clearly neither is the best option for every client.

There are also other college savings options to review and consider such as a Uniform Gift to Minors Account (UGMA), Uniform Trust to Minors Account (UTMA), Coverdell Education Savings Accounts, and regular investment accounts.

Hopefully this article serves as a value guide to help determine if a Whole Life Plan is a better fit and more suitable option for your clients.

All 9 Insurance can help you determine the best way to protect what matters most and create a solid foundation for savings through insurance.  For a free consultation, contact Dave Sinnes today at (856) 477 – 2526.

The following article was originally posted by Herb White, MBA, CFP on MyPrimeTimeNews.com:

When it comes to finances, many people believe that financial planning and life insurance are as unrelated as night and day. Their thinking is that financial planning is concerned with investments, taxes, retirement and estates, while life insurance is only for providing a “death benefit.”

Yet, life insurance can play a significant role in one’s personal financial planning—and together with other forms of insurance such as disability and long-term-care insurance, can even form the underpinnings of that plan. Called “risk management” or, simply, insurance planning, it can be a valuable tool to help achieve your financial goals.

Although the investment portion of a retirement or estate plan is typically comprised of stocks, bonds and/or funds — insurance can be used as a tool or strategy for those plans as well. For example, some types of life insurance policies, such as whole life and universal life, may include a savings component. These types of insurance policies have the potential to build up a cash value that can be withdrawn tax-free.

Because of the additional tax advantages available on these types of cash-value life insurance policies, some individuals use them as tools to supplement retirement income, pay off large debt like a mortgage, or fund a child’s or grandchild’s college education.
Let’s explore various types of life insurance.

Term life insurance, provides a death benefit and is what many people commonly think of when they consider life insurance. Although the premiums are considerably less than the premiums for whole life insurance these policies may lack an important financial planning component. Also, there are some additional drawbacks to consider when purchasing term insurance. To remain in force term insurance must be renewed at a set time; for example ten years, and the cost of premiums will increase at each renewal. Term insurance policies will not build cash value and usually become cost prohibitive as you get older often resulting in no insurance coverage as you reach life expectancy.

Whole life insurance, on the other hand, provides coverage for individuals who are concerned about long-term goals and financial planning in addition to having a death benefit. With whole life, you typically have level premiums and can accumulate cash-value that may result in a substantial amount of tax-deferred savings over time. This type of life insurance can also be a source of tax-free cash that you can access from the policy via policy loans. Whole-life policies come in several varieties, including:

• Universal-life policies. These offer flexibility in the payment of premiums, death benefits and savings. They are often selected to augment and fit in with your financial plans, because they have the potential to a return on the accumulated cash value.
• Variable-life policies. These policies can also offer flexibility in premium payments as well as provide you with more control over your policy’s cash value. The cash value can be invested in the investment choices within your policy. Be aware that the cash values and death benefits will be affected by the performance of your investment choices—that is, rising and falling with your investments. In addition, fees on these variable life policies are generally higher than with universal life policies.

It’s easy to see how whole-life policies may bolster a retirement plan or help with college for the children or grandchildren. But are they right for you? They are complex and, as with all decisions regarding your personal finances, require research before jumping in. Your financial advisor or insurance advisor will be able to help.

 

To learn more about different life insurance options, Contact Us today!

The following content was originally posted on WealthManagement.com by Darwin M. Bayston:

A 2015 survey of financial advisors by the Lifeline Program confirmed what those of us who work in the life settlement industry confront on a daily basis: Many financial advisors are unfamiliar or misinformed about life settlement transactions.

According to the survey, 40 percent of financial advisors have only a limited familiarity with life settlements or are entirely unfamiliar with these transactions. Only 11 percent of the financial advisors who were surveyed had assisted in the sale of a life settlement or had recommended these transactions to their clients.

Unfortunately, the lack of familiarity that financial advisors have with life settlements has led to a number of lingering misconceptions held about this important financial planning strategy. In this column and more to follow, I’ll shatter some of the common myths in the financial planning industry that lead to false perceptions about life settlements.

For starters, here’s a myth that I hear from even some of the most experienced financial services professionals and insurance brokers: “A life insurance policy is something you need to hold onto until the death of the insured.”

False.

Purpose of Policy

It’s important for advisors to approach a client’s life insurance policy the same way that they would any other asset in that client’s portfolio. Start by revisiting with them the reason why they purchased that policy in the first place. Chances are, the original appeal for buying a life insurance policy was one of these factors:

• Help fund educational expenses for their children in the event of their untimely death
• Provide an inheritance for their surviving spouse and children
• Produce income for their estate from a tax-free vehicle
• Pay for funeral expenses or other debts that would need to be paid, such as a home mortgage

There are other possible reasons, of course, but for most of your clients, the answer is likely to revolve around the basic idea that they were trying to provide financial relief for their loved ones in the event of their death.

Changing Needs

But did you know that nearly 88 percent of universal life insurance policies and almost 85 percent of term life insurance policies never actually result in a death claim? That’s because many of your clients find themselves in a very different place during their senior years—when they’re most likely to pass away and for the death benefit to be paid out—than they were when they first purchased their life insurance policies.

First, many seniors have had the pleasure of watching their kids complete their education, turn into adults and then start families of their own, assuming financial responsibility for their own lives. Those heavy burdens your client once felt to make sure their spouse and kids were provided for may no longer exist. Second, a lot of your clients have seen their income taper off during their senior years and are now more reliant on Social Security and/or their savings for a fixed income. Those insurance premiums that used to be no big deal may now be occupying a larger chunk of your client’s annual budget.

For your clients who’ve decided they no longer need or can afford a life insurance policy, you can potentially save them from a major mistake —and perhaps generate significant cash for you to manage in their portfolio. For example, they might be able to keep the policy in force through a loan or use of the cash surrender value, seek an accelerated death benefit, assign the policy as a gift or charitable contribution, or perhaps seek to sell the policy through a life settlement transaction.

Unfortunately, each year more than $100 billion face value of life insurance lapses by seniors over the age of 65—mostly from a lack of knowledge that an unneeded or unaffordable policy may be sold.

So rather than insisting that seniors should hold onto a life insurance policy until death no matter what the circumstances, the message instead should be that a life insurance policy is an important asset in a client’s portfolio and should be treated like any other asset. Specifically, it should be routinely evaluated as to its purpose, performance and strategic benefit in a financial plan.

To learn how we can help with all of your life insurance needs and protect what matters most, call us today at (856) 477-2526.

The following content was originally posted on ESPN.com by Dan Murphy:

Michigan and football coach Jim Harbaugh agreed to a contract amendment that will increase total payments from the school to $9 million in 2016.

In addition to paying a $5 million salary for each of the remaining six years on his deal, Michigan also will loan Harbaugh $4 million in 2016 and an additional $2 million for the following five years to pay the premium on a life insurance policy. The first $2 million loan was made June 3, according to records obtained Wednesday via a Freedom of Information Act request. Each additional $2 million payment will be made in December starting later this year.

As long as the insurance policy stays active, Harbaugh does not need to repay the loan until he dies. At that time, the university can recoup its original investment and the rest of the insurance payout would go to whomever Harbaugh chooses as his beneficiaries. Should the policy be stopped at any point, Michigan would still be entitled to get its money back from the insurer.

The deal insures that Harbaugh’s heirs, should he die while Michigan is paying for the policy, will get no less than 150 percent of the premium that has been paid, increasing the payout by $6 million in 2016 and $3 million each successive year.

The 150 percent clause protects the university as well. Harbaugh is allowed to borrow against the policy while he is living but has to keep at least 150 percent of the premium value untouched, which gives the school a cushion to make sure it gets its investment back.

Harbaugh’s original seven-year contract with the school allowed for the parties to sit down and discuss additional compensation after the coach finished his first season with the Wolverines.

Those discussions started under interim athletic director Jim Hackett in December. Hackett, the former CEO of Steelcase furniture, laid the groundwork for this deal, which a source at Michigan explained is a more commonplace form of deferred compensation in the corporate world.

New athletic director Warde Manuel had said in March that the amendment to Harbaugh’s contract was nearing completion. The two sides officially came to an agreement June 3.

If Harbaugh decides to leave the school or is fired, the university will stop providing the loans for insurance premium payments. If the insurance policy is canceled for any reason after that point, Harbaugh will need to pay back the money Michigan loaned him.

Harbaugh’s contract and this amendment are both set to expire in December 2021. There is a clause in the deal that allows the two sides to renegotiate after his fifth season in order to make sure Harbaugh’s salary still meets market value.

ESPN senior writer Darren Rovell contributed to this report.

 

To learn more about your life insurance options, call All 9 Insurance Group at (856) 477-2526 today!

 

 

• Have a large estate that will be subject to taxes when you die. The federal government taxes individual estates worth at least $5.45 million and the estates of couples worth at least $10.9 million. Your heirs could use the life insurance payout to cover the tax bill.
• Want to provide money to heirs for a funeral and final expenses or leave a legacy, even if you spend every dime of your retirement nest egg.
• Are the parent of a lifelong dependent, such a child with special needs. A life insurance payout can fund a special needs trust.
• Maxed out contributions to tax-advantaged retirement savings accounts and want a safe place to grow cash over the long haul as part of a diversified portfolio.

 

To learn more about the benefits of whole life insurance for yourself or to get your own NJ life insurance policy, contact All 9 Insurance Group today at (856) 477-2526!

The following was originally written by Barbara Marquand for the Huffington Post:

 

Whether it’s better to buy term life or whole life is one of the most asked questions about life insurance.

The answer depends on your needs, though, and before picking a policy, you should understand the differences. Here are the four main ways whole life insurance differs from term life.

1. Whole life insurance is permanent

The policy covers you for your entire life as long as you keep paying for it. Term life is temporary. It covers you for only a certain period — such as 10, 20 or 30 years — and no longer pays a death benefit after the term has ended.

2. Whole life has cash value

Permanent life insurance, such as whole life, features a savings component called cash value. A portion of your premiums go to the cash account, which accumulates slowly tax-deferred. Once you’ve built up enough, you can borrow against the cash value or surrender the policy for the cash. Term life insurance has no cash value. It’s pure life insurance, not an investment product.

3. Whole life is more complex than term life

The cash value account makes permanent life insurance more complex than term life. Before you buy, you’ll need to understand the potential return on the cash value, how the money can be used, and the effects on your policy’s payout if you make a withdrawal.

Whole life guarantees a fixed rate of growth on the cash value. Other types of permanent life insurance, such as indexed universal or variable universal life, have varying growth rates.

4. Whole life is more expensive than term life

A term life insurance policy will cost much less than a whole life insurance policy with the same amount of coverage. Don’t buy a whole life policy if you’re not sure you can afford it. Sure, the cash value can eventually build to a tidy sum, but only if you hold on to the policy for many years. If you have to drop it before then, you’ll have spent a lot of money and have little to show for it. Plus, you might have to pay a surrender fee and you’ll have no life insurance coverage.

Whole life insurance can be a good fit for some people. For instance, it might make sense if you have a lifelong financial dependent, such as a child with special needs, or a large estate that will be subject to estate taxes. Your heirs could use the money to pay the estate taxes.

But if you’re on a tight budget and just need temporary coverage that could help your family pay off debts or replace your income, term life insurance is the way to go.

 

All 9 Insurance Group is a leading New Jersey life insurance agency.  Call us today at (856) 477-2526 to learn how we can help you protect what matters most!

The following article by Daniel Solin has been republished from U.S. News & World Report:

 

Permanent life insurance is one of the most confusing topics in personal finance. This makes a discussion of whether to buy term or permanent insurance a daunting task.

Let’s first define some terms:

Term insurance provides a level premium and a level-death benefit protection for a stated period of time, such as 10 or 20 years.

Permanent insurance typically provides both a death benefit and cash savings. There are different types of permanent insurance, including whole life, universal life, index-universal life, variable life and variable-universal life.

The initial premium for permanent insurance is higher than for term insurance with a comparable death benefit. A portion of the premium may be invested, eventually providing a buildup of cash value.

Pros and cons of term insurance. Term insurance can be a good fit for younger individuals and families, who need protection against the loss of income of a primary earner for a stated period of time, at an affordable cost. In most cases, a medical examination will be required.

Term insurance does not build cash value, so at the end of the term, the policy will have no value.

An additional benefit of term insurance is that it is a simple product, so comparison shopping is quite easy. The market for selling term insurance is competitive, presenting good values for consumers.

Brant Steck, director of client relationships for Brokerage Unlimited, Inc., in St. Louis, recommends buying a level term insurance policy and matching the length of the level premium period to the amount of time the need exists. At the end of the level-premium period, the policy should not automatically cancel (unless instructed by the policy owner), but the premium will likely increase quite markedly if you elect to continue the coverage. You should consider a term policy with a conversion privilege, which will permit you to convert the policy into permanent insurance, without proof of insurability, and lock in the rate class you had at the inception of the policy.

For many consumers, the only way they can afford the coverage they need, for the time when they need it, is through term life insurance. For those people, it’s the insurance product of choice. Jeremy Ragsdale, vice president, Life Insurance and Annuities at TIAA-CREF, notes that more than 85 percent of the policies sold by TIAA-CREF are term policies, although they represent a much lower percentage of total premiums.

Pros and cons of permanent insurance. Permanent insurance may provide protection for your entire life. If a guaranteed level premium is important to you, make sure your policy provides for one.

Permanent insurance accumulates a cash value, and the policy owner may be able to borrow against it tax-free or use it for retirement or other goals (like education). Premiums are initially higher than for term coverage.

Who should consider permanent insurance? According to independent insurance consultant Glenn Daily, permanent insurance can make sense for consumers who need to create liquidity in order to pay projected federal estate taxes. He also recommends permanent insurance to those concerned about asset protection, where state law provides that the cash value and death benefits of insurance policies are not subject to claims by creditors.

Permanent life insurance also has an element of forced savings that can be attractive. In this environment of low interest rates, Daily notes that some policies have been paying a tax-deferred return of 4 percent or more. Of course, mortality and administrative costs of the policy will still be deducted.

Steck notes another situation in which permanent insurance may be the preferable option. If you are a retired couple concerned about spending money because it will deplete the inheritance you wish to leave for your children, Steck recommends designating a small portion of available funds and buying a survivorship-permanent policy. This policy should have a no-lapse guarantee. Steck believes this kind of policy will assure the couple that their children will receive the intended inheritance, while allowing them to enjoy their retirement.

Ragsdale notes that permanent insurance is no longer used only for estate planning or wealth transfer. He has seen an increase in policies issued to those who are older than 50, to cover newly acquired mortgages and other financial obligations.

Most retirees don’t need significant (or any) life insurance when they retire, unless they still have dependents, need to fund funeral expenses or provide for their spouse.

Term insurance often prevails, in theory. Both Daily and Steck believe term insurance is the best option for most consumers. Daily considers it the “default option” and says he “has to be convinced” that cash value insurance is a better one.

You have probably heard the expression “Buy term and invest the difference,” as a justification for buying term insurance. This saying is premised on a critical assumption: You will actually invest the difference instead of spending it. It also assumes the historical performance of the capital markets will continue in the future.

Insider information on cash-value insurance. Few consumers understand there are skilled professionals who can recommend cash-value policies that may be more suitable than those typically offered to them. For example, a “blended” policy combines whole-life and term-life into a single policy. This kind of policy may generate higher near-term cash values and higher death benefits at life expectancy than whole life alone. Blended policies are sold by many highly rated insurance companies, including Northwestern Mutual, Guardian and MassMutual. These policies can be competitive with term policies for some consumers.

Blended policies are not a panacea. Steck generally does not recommend them because of the heavy reliance on non-guaranteed dividends.

When considering the purchase of permanent insurance, Steck believes it’s important to focus on what is guaranteed and what is projected (or hypothetical). You will need to carefully monitor the policy if you are making a decision based on hypothetical scenarios that rely on a projected dividend, interest rates or subaccount performance. You should also be prepared to make additional capital contributions, if necessary.

A final recommendation. Daily, a fee-only insurance consultant, says that most clients who consult with him end up doing something different than what they had originally planned. He does not believe consumers are getting the information they need to make an informed decision.

Steck believes consumers benefit from getting an objective, third-party opinion, but feels they can do so without incurring a fee by using an independent brokerage firm. His firm offers a “performance evaluation” of clients’ existing life insurance policies at no cost. He says many clients require only an adjustment to their existing policies, rather than replacement insurance.

Whichever route you take, you would be well-advised to seek a second opinion when making a decision that has meaningful ramifications for you and your loved ones.

 

To learn more about your options when considering a life insurance policy to protect yourself and your family, contact All 9 Insurance Group today!

The following content was originally posted at Bankrate.com:

 

Where you store your child’s college savings could impact his or her ability to attend college almost as much as grades and standardized test scores. Section 529 plans — the college savings vehicle preferred by many families and financial advisers — offer federal and sometimes state tax benefits, and subtract far less from a student’s financial aid package than money stored in a checking or savings account. But having a robust 529 college savings plan could hurt the student’s chances at tapping other sources of financial aid, which has parents starting to examine other options, such as cash value life insurance policies. These policies, for example, don’t offer state tax incentives but have fewer restrictions on distributions and offer a place for families to shelter funds from the federal financial aid methodology.

In the battle between 529 college savings plans versus permanent life insurance, here’s how both fare.

Round 1: flexibility

According to the Internal Revenue Service, money in a 529 college savings plan can only be used for “qualified education expenses” including tuition, fees, books, and room and board at an accredited U.S. school. Should your child opt out of college, choose a foreign or unaccredited school or receive a full scholarship, you can transfer 529 funds to another beneficiary or pull the funds out and pay income tax on the withdrawal. You may also have to back taxes if you’ve taken state tax deductions over the years as well as a 10 percent penalty on earnings.

“With life insurance, it doesn’t matter how you use the cash,” says Jim Van Meter, founder and president of The College Planning and Funding Advisor in Reno, Nev. A student can use life insurance savings for college, a down payment on a house, to start a business or for retirement, he says.

Round 2: risk

Section 529 college savings plans fluctuate with the market. Whole and universal insurance policies frequently provide guaranteed returns if time is on your side, says Myron Feinberg, a Certified Financial Planner and founder of the College Aid Specialist in Commack, N.Y.

“In the first two years of a life insurance policy you’re getting a minimal of rate of return because (insurance providers) are pulling out the costs,” says Feinberg. “After 10 or 12 years, you will see a rate of return of 4 (percent) to 5 percent.”

Guaranteed returns can cap your earnings. Should the market generate returns above the fixed rate on your policy, life insurance holders may not earn any additional cash — whether you can depends on your insurance provider and policy.

“The thing about a permanent life insurance policy is that you want to put as much money in as the government will allow you,” says Jim Kuhner, owner and certified college planning specialist at College Selection Strategy in Keller, Texas.

Unlike 529 plans, some life insurance policies use a tiered system when doling out returns. The more you invest, the better your return rate. To maximize earnings, Kuhner advises families to purchase a policy with a low death benefit and to contribute the maximum allowance.

Round 3: financial aid

One of the major advantages to using a cash value policy for college savings is that money in an insurance plan won’t reduce your financial aid. Money in a 529 college savings plan can subtract up to 5.6 cents in aid for every dollar stored in the account, but cash value policies are sheltered from the federal financial aid formula, according to the Department of Education.

“If families take money out of a life insurance policy for college, they need to do that as a loan,” says Van Meter.

Van Meter also says that taking a loan against a life insurance policy won’t count against your financial aid but will reduce your death benefit. Cashing a policy out entirely will count as income and can reduce your aid package by up to 47 percent and could incur surrender charges.

Families with low assets are already protected from losing federal financial aid dollars. According to the Department of Education, families can hold up to $74,000 in assets — including real estate outside the primary home, stock market investments, savings accounts and college saving vehicles — without impacting their federal aid. Exactly how much depends on the age of the oldest parent.

Round 4: cost

Section 529 administrative and advisory costs can range from 0.25 percent to 1.85 percent according to Morningstar, but charges on cash value insurance policies can easily top 2 percent, says Kuhner. To reduce the costs, Kuhner advises families to insure the student rather than listing him or her as the beneficiary.

“The mortality charges are going to be much less,” he says, adding that policies for young, healthy kids are substantially cheaper than those for adults.

Besides paying higher administrative and advisory costs, Peter Laurenzo, a Certified Financial Planner and president of College Aid Planning Associates Inc. in Albany, N.Y., says parents saving for college in an insurance policy won’t get a state income tax deduction that many 529 holders receive.

“In a New York 529 plan, (families) get a state tax deduction up to $5,000 per parent,” he says. “That’s significant.”

However, not every state offers a 529 deduction and most that do only offer it to residents invested in that state’s plan.

Before enrolling in a life insurance or 529 plan, comparison shop and have a financial adviser crunch the numbers to see whether the no-risk returns of a life insurance plan outweigh the costs and lost tax deduction.

 

To learn more about the benefits of life insurance and 529 plans, call All 9 Insurance Group today at (856) 477-2526 and speak to one of our experts about how you can plan for your children’s future.