We just had a baby boy last month (also have a 2 year old daughter) and I am wondering if some of the more experienced life insurance guys could give me your advice. I would like to get a policy on him for a few reasons, gauranteed insurability, allow us to properly mourn in the event of a loss(I don't want to have to go to work the next day), and final expenses. I would also like to start saving some money for him for college, wedding, down payment on 1st home etc.. I purchased an Indexed Universal Life policy on my daughter when she was born. Would've done VUL but I didn't have that license at the time. Now I'm wondering would I be better off getting a VUL for my son and let that cash value build up or is it smarter to buy a term policy and invest the rest in a 529 plan?
I remember a heated debate on this a few months ago.
Well...I'll be brief. Our kids are 13 and 11 and have a nominal amount of life insurance. I have had 529s on them and never regretted it.
Just remember...you don't necessarily have to use your own state's 529 plan. For example...Maryland has a great mix of fund options...Utah has very low expenses and Louisiana, Kansas and Alaska have done quite well. Alabama and Arizona are generally considered among the worst.
You will lose a state tax credit if you go out of state...so consider that.
For the record, EIUL, UL, VUL are not whole life policies-----just look at the guaranteed column (not the assumed column).
A true dividend paying WL policy is a wonderful place to save for college. It does all the things the original poster mentioned and it will provide much more opportunity for your children and you in the future. Unlike a 529, it won't count against you if you ever apply for college aid (need or merit based).
529's are good for the institution and states that manage them but not so much for you! A 529 is only good for saving for college----that's it.
WL provides so much more opportunity and flexibility!!!
The very best single financial tool ever created!!!
A couple things to consider in your planning. Really a whole life on a child should really be as heavily loaded with the GIO you can afford. In the 20 years I been doing this it seems screening for life gets harder and harder as people have more and more aliments that effect underwriting.
As a college funding choice, yours would be better for CV build up. 529's are ok and can work.
The main drawback to 529's is FASFA (a college bound student/parent nightmare) FASFA is where you declare your assets and I believe your 529 plan assets count against you. Just about every college expects or requires you to submit FASFA information as they also receive funding based on FASFA needs.
Life insurance CV are not declared and don't work against you. FASFA determines alot of funding aspects for college, like grants and work study. The more assets you have to declare... the more they expect you to pay and the lesser opportunities for work study (colleges give these jobs based on FASFA rankings if FASFA says you qualify for work study, you bump ahead in the applicant pool for campus jobs.) or grants.
So, while there is nothing wrong with a 529 in it's concept, how it is viewed by the government compared to life cash values is something to consider. Unless of course you are one of those who wants to use your own money for college and dosen't want grants or work study.. to each their own.
Buy 10-15K of Whole Life Insurance with Paid up additions for final expenses. Should run about $12-15/month.
Put all the rest of your money into a 529 for college. Life insurance is not a proper financial planning tool for college. Thus the reason they call it "Life Insurance" and not "college insurance"
Buy 10-15K of Whole Life Insurance with Paid up additions for final expenses. Should run about $12-15/month.
Put all the rest of your money into a 529 for college. Life insurance is not a proper financial planning tool for college. Thus the reason they call it "Life Insurance" and not "college insurance"
Properly funded whole life insurance is the only college planning tool that is 100% self completing, has no market risk, and no limitations on use. I have clients with 529s and clients with whole life, thank god I don't have clients with 529s that have a child going to school right now or next year. Those people depending on investment choice watched their savings value drop 10-40% in those 529s. For whats its worth, my father is a CLU ChFC and helped pay my tuition with Whole Life Insurance so I tend to lean more that way. The whole life college savings tool only works better than a 529 if properly funded, meaning that cash has to be dumped in above and beyond the premium. And it should be bought on the parent not the child, this way if you die or become disabled it is 100 % self completing. If something happens to you in the next 20 years who is going to put money into the 529?
No to the 529 (a. performance, b. risk, c. effect on financial aid at college).
Set up your own life insurance plan, overfund it, if your kid becomes a drugged-out hippie and you choose not to pay for college, you've got additional money for your happy retirement.
Mind you, I'm not saying a thing about YOUR kid. I just know there are some folks that read this that were drugged-out hippies in college and if I were their parent, I would've let them take out all the loans they wanted to incur. Ha!
The whole life policy, if you have gains, has tax consequences. The 529, if used properly, has tax advantages.
I do suggest that the 529 be done by the grandparents, if possible.
Watch the expenses in the whole life policy (including the life insurance expense). Watch surrender charges, and have a game plan for how you are going to get the money out of the policy when the tuition comes due.
Both work, you just have to understand how to make them work for what you want to accomplish.
The whole life policy, if you have gains, has tax consequences. The 529, if used properly, has tax advantages.
I do suggest that the 529 be done by the grandparents, if possible.
Watch the expenses in the whole life policy (including the life insurance expense). Watch surrender charges, and have a game plan for how you are going to get the money out of the policy when the tuition comes due.
Both work, you just have to understand how to make them work for what you want to accomplish.
Dan
There are no tax consequences if the values are loaned and not withdrawn above principle. The dividend on a participating policy can be used to pay the interest back to yourself on the loan from cash value and the insurance is still intact. Thus, creating your own banking system with the best loan terms on the planet.
At the same time, this significantly raises the amount of $$$ you have to have in the policy, or else you will have tax consequences.
There isn't a problem with this, people just need to understand the issues with getting the cash to pay the college bill, what the potential consequences are, and the extra costs involved.
Our kids are 13 and 12 and I like our method the best. Mostly 529s with a smattering of insurance cash value.
But mostly one thing...SCHOLORSHIP. I'm hoping for the best. After All...my daughter's 5th grade basketball team was one of the most dominant in Ohio basketball history.
No to the 529 (a. performance, b. risk, c. effect on financial aid at college).
Set up your own life insurance plan, overfund it, if your kid becomes a drugged-out hippie and you choose not to pay for college, you've got additional money for your happy retirement.
Mind you, I'm not saying a thing about YOUR kid. I just know there are some folks that read this that were drugged-out hippies in college and if I were their parent, I would've let them take out all the loans they wanted to incur. Ha!
I am totally with this one... I just did the FASFA for my 18 year old and thankfully I dumped the 529s shortly after I got them or we would have been screwed.
WL is much better but not on the kid, like said above... I have another daughter that will be graduating next year and same thing, I dumped that 529, as well not long after we got them.
FASFA sucks, by the way, if anyone was interested. It's a total pain in the rear. I've planned for this for a few years and won't go into details but the cost of a higher education right now is astronomical and if you are making big bucks as an agent; you better have a good accountant deducting every darn thing he can to get your net down so you don't go bankrupt paying for a GOOD higher education for your kid(s). We needed a higher net this year to refi our home but we figured the cost of staying in our god awful arm was better than paying out the rear for the university... it was a toss up. So now we have two years of staying in the ARM so we can bring down our net to qualify for the funding through FASFA.
I'm peeved about the whole thing.
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Louise Jackson-Marquez
Jackson Financial
direct: 214-927-6546
The worst thing about 529's is the fact you can only use them for college. What if your kid wants to start a small business out of high school? What if he or she wants to go to the military? What if your child has an oops moment and needs to raise a kid? What if your kid is offered a scholarship for athletics or academics? What if your kid finds a good job as an apprentice in a trade and wants to buy a little house? What if....
FASFA is something alot of people don't understand. Just about every family is required to do this in order to get financial aid, grants and work study. As NKA pointed out, it really kicks you in the teeth if you've planned and saved in certain investments.
Not having to declare the cash values is SO unbelievably helpful in the FASFA process that EVERY advisor should do one before they lock in on what they believe works for advising on college planning. Sitting through the process lets you know how well your suggestions actually work out, vs. how theoretically they do.
With many funding options the FASFA software says "thank you very much, you've done such a good job saving that the grant and work study job your child would have had at their school , now can go to somebody else. Thank you for saving (us), we'll use the benefits that your child would have had for somebody else."
It gets back to that ole "what you keep vs. what you make concept." FASFA certainly doesn't reward the 529ers. You have to take the blinders off and look at how your college investment selections actually work out. The haggarly 5-6% life return pales against that 11% market return, until you find out they don't count the money you earned at 5-6% at all towards college costs and apply the full meal deal on that 11%.
To Chumps, remember times times the scholarship money for brains over jumpshots. Study, study and study some more. Play too, but atheletic scholarships are now year to year deals, renewable, not a four year full ride like the ole days.
Both my kids turned out to be National Merit Scholars and picked up about $300,000 in scholarships between them for private schools and medical school for the oldest. (don't worry, he'll leave med school with a house payment on a home sized loan, but about one year's cost is being picked up.) And he still plays sports the whole time. Soccer first, Lacrosse in college and Rugby in med school.
529 or Whole Life Policy on my kids?
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