How to Use Juvenile Life Insurance to Help Save for College

According to the College Board's most recent report: Trends in College Pricing 2010, on the decade from 2000-01 to 2010-11, published tuition and fees at public four-year universites and colleges increased at the average rate of 5.6% per year beyond the rate of general inflation. From 2000 through 2009, the S&P 500 index returned -24.10%. The dramatic rise in college tuition costs and staggering lack of personal wealth have forced parents to explore alternatives to existing college savings strategies.

For days gone by decade, financial planners have recommended tax-advantaged 529 plans as the primary vehicle for college savings. A 529 plan is a tax-advantaged financial product intended to pay "qualified educational expenses" (e.g., educational costs). Plans are generally state-sponsored, but administered by investment companies. Families can choose from an array of professionally managed funds both in and out of their resident state. Some states allow tax-deductible contributions for state residents.

In response to high fees and 529 plan underperformance, financial strategists are thinking about whole and universal life insurance as a college savings alternative. The tax-deferred cash value accumulation of whole and universal life insurance coverage includes a few of the same tax advantages of the 529 plan, with performance guarantees and reduced volatility.

Unlike a 529 plan, the cash value of juvenile life insurance can be used anytime, for just about any purpose, without penalty and isn't limited to qualified educational expenses. If the kid is lucky enough to secure a scholarship or decides to postpone college, the funds continue steadily to grow and lifetime fully-paid insurance is available when the need arises. Following the insured reaches age 21, some insurance firms offer the possibility to purchase up to $2,000,000 of additional coverage without a medical exam.

The cash value of juvenile life insurance coverage is sheltered from the federal school funding needs analysis process, a significant consideration for upper-middle class families on the "bubble" for school funding.

Juvenile life insurance provides growth guarantees, unavailable with a 529 plan. The 38.5% decline in the S&P 500® index in 2008 dealt a devastating blow to an eternity of carefully managed savings - just when the money was needed most. A complete juvenile life policy that increases by way of a minimum guaranteed interest, and also a non-guaranteed dividend declared annually by the insurance company, can provide funds needed at a time certain, with less risk. Indexed juvenile life is permanent universal life insurance which has cash value increases linked to the performance of an equity index (e.g., S&P 500®) up to a certain percentage (a "cap") with downside protection (a "floor").

Some indexed juvenile life products have a guaranteed minimum interest of 2%. For parents willing to forego a higher initial guaranteed interest, an indexed policy is structured to improve in value when the stock market rises and will not incur losses if the marketplace goes down.

James Garfinkel may be the founder and President of New Amsterdam Life and a director of the non-profit Saving For College [1] Foundation. James has been developing wealth planning and transfer solutions for individuals and their families for nearly 30 years. James provides customized financial, insurance, tax and estate planning strategies that will conserve, grow and transfer wealth. For more information CLICK HERE [2] or can be reached by e-mail at info@newamsterdamlife.com.