College Education Funds

You can use the cash value of a permanent life insurance policy to fund college education through policy loans or withdrawals. To access funds, you must have a permanent policy with cash value accumulation, like whole life or universal life. You can either take a loan against the cash value, which is often tax-free, or withdraw funds directly. This money can be used for various expenses beyond tuition, and in many cases, the cash value won't impact financial aid eligibility if you borrow against it instead of withdrawing or canceling the policy.

How to access the funds

• Take a policy loan: You borrow from the insurance company, using the policy's cash value as collateral.

• Withdraw cash value: You make a withdrawal from the policy's accumulated cash value.

• How to get started: First, determine if you have a permanent policy with a cash value component by reviewing your policy documents or calling your insurance company. Then, contact your agent or a financial advisor to discuss your options and fill out the necessary paperwork.

Important considerations

• Policy type: This method is only available for permanent life insurance policies that build cash value, such as whole life or universal life. Term life insurance does not have this feature.

• Financial aid: Borrowing against the cash value generally does not affect financial aid eligibility, unlike withdrawals from a student's own savings account.

• Impact on death benefit: Loans and withdrawals will reduce the policy's death benefit and cash surrender value. If you have an outstanding loan, you may owe interest.

• Taxes: Policy loans are often income-tax-free, but withdrawals may be taxable depending on the policy and how it was structured. If the policy is a Modified Endowment Contract (MEC), both loans and withdrawals could be subject to income tax and a 10% penalty if taken before age 59½.

• Other options: You can use the funds for more than just tuition and books, including travel, supplies, and other related costs.