By Ryan Velez
With the price of education rising, both for private schools and for college education alike, many parents are trying to find ways to meet these costs. Black families, in particular have been statistically proven to pay more in for student loans on average than whites, and are trying to work through this trend both by pursuing scholarships and grants and supporting legislation designed to try and lower both prices overall and the price gap. Black Enterprise suggests that there may be an unexpected way to help secure funding : a life insurance policy.
While a life insurance policy in your child’s name may be a difficult thing to conceptualize, it could lead to financial resources that could be used not only for education, but for other life events. Black Enterprise says that three main points may lead to you wanting to take this path. First, the money you build up in the policy can be used for education costs. Second, your child will have life insurance in the event he/she ever becomes ill and uninsurable, and finally, you’re helping your child protect his family and have money for life events like buying a home.
In order to gain some more insight into this practice and how it’s done, Black Enterprise reached out to Christopher Gatty, a financial adviser for Reby Advisors. First, Gatty breaks down exactly what type of policy to pursue for children with financial support in mind. One ideal option is a variable universal life policy (VUL). By using this policy, you build a cash value that can be invested into other accounts for more returns. This money is not taxed as income as well, which means more flexibility than some traditional college savings like a 529 college saving plan.
“That money [from a 529 plan] can only be used for qualified education expenses – like tuition, books, and room and board. The cash you build up in an insurance policy can be used for anything,” he adds. Along with this, money withdrawn from a plan is taxed, while money withdrawn from a life insurance plan is not. VUL value is also not considered an asset in many cases, which means your savings won’t hurt your child’s financial aid chances.
Gatty is not only a proponent of life insurance plans for his children, he practices it himself. “I’ve done this for my own child. He’s 11-years-old. I’m paying about $1,600 a year on a $350,000 policy. By the time he is 50, he can cash out the policy and will have enough to buy a house or provide financial security for his own family,” he says. However, due to the expense involved, it is best to consult a financial professional before making a decision.