Using Juvenile Life Insurance To Save For College

By Author: James Garfinkel
Total Articles: 13
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According to a recent article in the New York Times, the amount of estimated total US student debt is expected to hit $1 trillion in 2011. “The student debt crisis will not recede as long as college costs exceed average annual increases in household income,” explains James Garfinkel, founder and CEO of New Amsterdam Life and a director of the non-profit Juvenile Life Insurance Foundation. Facing a challenging job market and an ever increasing debt burden, Garfinkel envisions the possibility of a government bailout of student debt that rivals the bank bailout of 2008-2009. According to the College Board's most recent report, over the decade from 2000-01 to 2010-11, published tuition and fees at public four-year colleges and universities increased at an 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 rise in college tuition costs and decline of personal wealth have forced parents to explore alternatives to existing college savings strategies.

What About 529 Plans?

In the 1990s, financial planners 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., college tuition). Plans are generally state-sponsored, but administered by investment companies. Parents are able to choose from a diverse array of professionally managed funds both in and out of their resident state. Some states allow tax-deductible contributions for state residents.

High fees and plan underperformance has tarnished some of the luster from 529 plans, financial strategists are returning to whole and universal life insurance as a college savings alternative. The tax-deferred cash value accumulation of whole and universal life insurance offers some of the same tax advantages of the 529 plan, with performance guarantees and reduced volatility that are sought after by many families.

How Does Juvenile Life Insurance Compare to 529 Plans?

Unlike a 529 plan, the cash value of juvenile life insurance can be used at any time, for any purpose, without penalty and is not limited to qualified educational expenses. If the child is lucky enough to obtain a scholarship or decides to postpone college, the funds continue to grow and lifetime fully-paid insurance is available when the need arises. After the insured reaches the age of 21, some insurance companies offer the opportunity to purchase up to $2,000,000 of additional coverage without a medical exam.

The cash value of juvenile life Insurance is sheltered from the federal financial aid needs analysis process, an important consideration for upper-middle class families vying for financial aid.

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 severe blow to a decade of carefully managed savings - just when the money was needed most. A whole juvenile life policy that increases by a minimum guaranteed interest rate, plus a non-guaranteed dividend declared annually by the insurance company, can provide funds needed at a time certain, with less risk.

Indexed Juvenile Life Insurance

Indexed juvenile life is permanent universal life insurance that 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"). For example, the New Amsterdam Life College FirstSM Plan is from a trusted A+ rated insurance company with a 160 year history. It has a guaranteed minimum interest rate of 2% - it will increase in value when the stock market goes up and will not incur losses if the market goes down.

With escalating tuition and stock market volatility, parents are embracing juvenile life insurance and other creative college savings strategies that provide safety and security.