Education Fund Using Life Insurance

If you’re worried about saving enough money to send your kids to university, you might be tempted by a sales pitch for a cash value life insurance policy. Sometimes these policies are touted as a great way to save for university fee. Besides paying a death benefit when you die, these policies, also known as permanent life insurance, feature a cash value account.

Assuming you buy the policy when your kids are very young, by the time they head to university, you can withdraw the money or borrow against the account to help pay for university.

University finance experts warn parents not to be taken in by the pitches. Cash value life insurance policies are expensive, complicated and unnecessary for most families. The only people arguing for these are the ones who are going to make commissions from selling the policies.

Many life insurance agent recommends cash value insurance policies for some clients to save for university expenses. While the sales tactic has been around for decades, university financial aid experts say the use and promotion of it comes in waves.

Critics also say life insurance product illustrations, which show how the cash value account could perform, are often overly optimistic.

Life Insurance Agents who make commissions off product sales will sometimes rent out a conference room at a restaurant or hotel and invite parents to a free dinner to learn about saving for university.

Afterward they meet with families one on one, often urging parents to liquidate CDs and savings accounts to buy a cash value life insurance policy so they can shelter those assets from university need-based financial aid calculations. Some salespeople go even further and encourage parents to tap home equity and retirement accounts and pour money into the policies.

Case Study
A father planning RM300,000 education fund for his child. Target savings over 20 years
A more viable approach would be purchasing term insurance in the event of pre-mature death (or disability) plus savings/investment that attracts better returns (as compared to life insurance policy).

In the event of premature death or disability - the term insurance will ensure there is a instant RM300,000 fund created for the child's education need. Term life provides coverage for a certain period, such as 10, 20 or 30 years. You choose the term length and buy the amount of coverage to protect your financial dependents. The policy pays a death benefit to the beneficiary if the insured person dies within the term. Because the policy is temporary and has no cash value, the coverage is cheap.