How to Use Whole Life Insurance for College Planning (Done Right)

Hey everyone and welcome back to the AndAsset channel. Today we are going to talk about a question that really I get a lot from families and because they've seen it, they've heard of this strategy and it's how can whole life insurance actually help pay for college? So how can whole life insurance fit into the college funding strategy that you may already have in place? So today we're going to dive into some of those details and look at a real example of how a family that I've worked with is actually looking at life insurance and adding it to their plan. So now one thing, just to be clear, whole life insurance is not a replacement for all of your other college funding strategies. Now it doesn't mean it is an investment, but it's a useful tool that can be added there. So it can give you the flexibility, the liquidity and control when those tuition bills arrive without forcing you to sell other investments or pause your retirement contributions or pull from retirement accounts and many different things like that. So in today's video, we will cover how it works, how parents, potentially grandparents can use it, how you can utilize policies on children themselves and why flexibility and control can be so important. We'll dive in here today and look at just kind of the initial challenge of one, college funding. First, it's really, truly a short-term cashflow challenge. So it's going to be, your kid gets there, that's four years. Now you have more than one kid that could stretch out eight years, 12 years and so on, but it's really a short-term cashflow challenge because those expenses are going to come up and we're going to have to pay for those over that short timeframe. So now most families store the majority of their wealth and things like, well, maybe home equity, maybe they have their own retirement account so that they're looking to the future. And then they have their other market-based assets and typically college funding. Most common, of course, there's other options and many other things you can do, but most common would be the 529 plans that you may have. So all of these are great for long-term strategies, but a lot of times may not be as liquid when you might need them immediately there. So they can be great, but when we add whole life to the picture, it can help in these specific ways. One, you're going to have guaranteed cash value growth. So to add to the component of everything else you have, you're going to have guaranteed growth. You will have access without penalties or restrictions. So this specifically applies to, if you've already been putting money in your retirement account, now the tuition bill comes, you don't want to have to pull from those, of course. And so whole life can be a great way to be able to get access without those restrictions. And it can be some protection from the market downturn. So of course, just like we talk about, whole life insurance can be a buffer in retirement. You get there, have a down year, want to have another uncorrelated asset that you can pull from, well, it'd be the same thing for college. If everything is in market-based assets, kids 17 about to go to college, there's a big downturn and you lose 20% of that value. Well, now you're in the same position, except for sometimes retirement, you can postpone. We don't want to have to tell our kid, hey, you're going to have to wait on college because market took a downturn. So this can be a way that as a buffer, add some flexibility there. And then just another advantage of sometimes that cash value may not be counted as an asset on financial aid forms. So it can be looked at as a private contract and potentially in getting that. So really think of it as a flexible buffer. If your investments are down, don't have to sell, you have liquidity, you don't have to pull from other assets that may be less advantageous to pull from there. So one strategy, two, a couple of different ways that we can look at this. But one is maybe you've already had a policy started or you're starting a policy on yourself. We can go ahead and use that policy to help out just like we would at any other expense comes up. So we have it policy owned by a parent can help smooth that cash flow. You know that it's there to cover those expenses. So you've been building up cash value. You can pull from there. It can help handle specifically overlap of a group. We have plans to fund. Now we have multiple kids in college. We need to pull from some resources. Definitely don't want to pull from those retirement accounts as I've seen parents talk about before. And so now we have the advantage of we can pull from a long-term asset, pull from the cash value, and then of course be able to pay it back much like you would get financing for college. But now you can pull from your own policy to be able to do that. So let's say one, you have multiple kids that are in overlapping years. You can really help cover that gap because you go from, yeah, maybe college is going to cost $150,000. Now another kid's in at the same time. And so you're going to have those bigger expenses during that time. And so, especially if markets down can be a useful place to pull from there. So also the other key that we don't often talk about is college funding is that this is life insurance. It is there to protect in case something happens to you. So of course, if something does happen, there's a debt benefit that gets paid out. And then that can help complete the plan of now there's funding there for college so that that tragedy, everything doesn't have to also postpone potential college that they would want to go to anyways there. So it can be useful in lots of different ways. And then of course, strategy number two would be, let's look at policies. Maybe you already have a policy and you're looking at, Hey, let's get a policy specifically for one being able to pay for college, but also shouldn't be looked at as just a college funding life insurance policy. It is a long-term asset can set that financial foundation that of course can be used for college can be used for many other things can be used for the college years. Of course can be used in early adulthood. If a first home starting a business, the emergency fund, and then also it's the lifelong insurance protection that is in place there. So even if colleges potentially already covered, so get there, get a scholarship, get some NIL money. So they're an athlete in that case, then the money doesn't go to waste. Of course, 529 plans can be converted to a Roth and there's many other things you can do there, but it's truly setting the foundation of it's not specifically for funding the college planning there. Now, the other thing is maybe the kid decides they don't want to go to college, but there's still going to be a lump sum of money that now they can start a business, be able to do many different things with that. So those are the two general strategies, two ways that you can look at it. If you are a grandparent, look at it the same way of, Hey, you could possibly get a policy on that grandchild and then be able to help them in that way. So that's where the grandparents can fit into the picture as well. Now, of course it has to be designed in the right way. So main thing, I know we've been over this many times if you watch this channel, but it does need to maximize the cash value. So we want to make sure it's focused on the growth. We want to make sure that whether the parent was using a policy on them, they need to be insured because we want to make sure that there's protection there so that if something does happen, death occurs, that there is going to be a benefit there. Then we also want to make sure there's flexibility in the policy. So we can design the policies to be completely paid up. Now, also a lot of the people we work with would rather have that kid be able to continue funding the policy. Also want to make sure not a mech and we want to start early. So of course, with anything starting early gives more time to compound. So whether it's an investment, whether it's life insurance, the longer you have, the less you would technically need to be putting in to grow to that same amount there. So those are some key things that we want to make sure. And then let's look at how it actually could work in practice. So let's look at a real example of someone that I recently worked with and what they decided to do. Hey, everyone. It's Justin Gartman, a wealth coach here at BetterWealth. And if you are a high earning professional and entrepreneur or someone who just wants more control over your money, we are offering something called a clarity call. It's a one-on-one conversation with someone like myself, where we are able to walk you through exactly how overfunded whole life insurance could help you build a safe liquid tax advantage foundation for your wealth. No pressure or fluff, just real clarity on whether the strategy is right for you. So click the link in the description below or tag comment, and we'll walk you through exactly how we can possibly help you. Now back to the video. Now they had multiple kids, but we're just going to look at one policy on one kid in particular here. So what they were doing right here is they were coming in and they were wanting to contribute. They were already saving $12,000 per year for this child. Now they wanted to split 6,000 of that going towards life insurance. And then they were going to take the other 6,000 and that was going to be used. They were putting some of that into a 529. We're thinking about putting more or just putting that in a separate investment account. So basically $6,000 in life insurance, another 6,000 being invested in the market. And so we look here, they could, it was a five-year-old. So starting at five years old, they would be able to contribute by the time that they got to age 18. So the age that we would want to start college potentially, they would have $102,000 in cash value, at least based on these projected dividends here. That would be that 6,000 per year contributed every year. So 102,000 goes in that now they have available to be able to utilize, to help out with college expenses, whatever it may be there. Now the other 6,000 they looked at. So if we look at just a future value calculator, they put in $6,000, they thought, hey, maybe we can get an average seven and a half percent growth in the market. And so that's going to grow to $134,000 right there. So all in all, that ends up, they have about $236,000 that would be set aside for the kid, which at that point should be plenty or a close amount to be able to fund whatever college might be at that time. Looked in recent averages at $25,000 per year, that's 13 years from now, say it doubles, you're still looking pretty good. And then of course there might be some financial aid, there might be scholarships, there might be other things that could happen there. So now they're looking at, they have guaranteed growth that they know is going to get there. They also have the investment that's going to grow to a higher rate. And then even if things take a dip, they can pull from the life insurance or perhaps they decide not to go to college, more of it's covered. They still have $100,000 that's a lifetime asset that's going to continue to grow, especially if they continue to fund it there. The other thing they thought, wait, what if I don't get seven and a half? What if I get 6% growth over that time? Same thing, you're going to have 120,000 compared to 136. So still going to be right at 220, but we can look at and know with a high degree of certainty based on historic dividends that we're likely going to be very close to this 102,000 amount that then enables potentially where you maybe would get six because you're investing more conservatively, especially as you get closer to that retirement, that you can invest a little more aggressively knowing that, hey, even if things take a dip, I'm going to have the guarantee of the life insurance in place there. So that's definitely a key. And while that we look at the non-guaranteed, there would be guaranteed values as well, which is on a different page here. So all that to say, that's one way that they could look at it. And then we could also look at a way of, all right, what if this parent had a policy, we're getting a policy. So what if they looked at it themselves? And of course they were getting a $20,000 a year policy. So more than the kid, and they were looking future to retirement of wanting to be able to use this down the road, have some cash value, have a buffer later on. But of course, along the way, when that kid gets to college in 13 years, if they started this at the same time, they're going to have $344,000 of cash value that is above and beyond what they would have in the investment plus the life insurance there. And so it would be plenty of money there that if it's not already being borrowed against, which their plan was really looking long-term and not looking to use this anytime soon, is that they have an asset that can be used without having to pull from their retirement accounts, without having to potentially stop contributing to what they're already doing, or without having to go out and get loans that they would have to pay back at who knows what interest rate or lose a little bit of that control. Of course, if you're borrowing from this, that is a loan, it's going to need to be paid back or recommended that you go ahead and pay it back. But those payments are going to be completely flexible and be able to pay back as cashflow allows there. So that can be a useful asset. And guess what? They borrow from this, pay it back, say over the next even five years, even 10 years, and they're going to end up in pretty much the same spot as they would have minus the cost of the interest and everything there so that now they did not interrupt any of their planning. Kid was able to go to college and potentially even if they have the policy on the kid as well, now that kid can continue to use that. But that has another realm of money that can be used that you were already planning and using in another place there. So can add a lot of predictability, add some control and give you the stability to go along with the other assets, other investments that you have. So of course, how it compliments everything, because again, life insurance is not an investment. It's not meant to replace any of your other college investments or college savings, but really is a tool to help supplement that. So what it does is it adds predictability because the cashflow is going to grow every year, just a matter of how fast with those dividends, there's no restrictions. You can use those funds for tuition or anything else at that time. And it has that stability. So you know that the values don't necessarily depend on the market cycles. So if market happens to take a dip, you know, you're going to have your life insurance, give those other assets a chance to recover. And it gives you control. You decide how and when to access and repay those loans, rather than having to go to outside sources. Now, of course, if you can get cheaper money, and that's easy, you can do that too, but it gives you optionality, which can be key. So in other words, it is the flexible portion of your plan that can really help adapt as life changes. So again, those same key takeaways, it can give you quite a few benefits. And when used thoughtfully, it can help you fund college without sacrificing your long-term goals, not having to postpone anything, and can really be a big benefit that not only gets college paid for, but also provides a long-term asset for either yourself or your kid or both, depending on how you decide to go about it. So if you are ready to explore some of these options, we can get on a phone call, we can discuss what it could look like potentially for you, whether it's college funding, or there's use of the life insurance policy and many other ways. But the keys would be, hey, start early, focus on cash value, keep it flexible. Those are the main things that you want to look at in a policy, and starting early just helps with anything planning-wise is, hey, that kid was five, start that at one. Maybe you have to use less in there, give it more time to grow there. So if you want to reach out and have a conversation with myself or anybody else on the BetterWealth team, then give us a call today. But hope this is helpful in seeing a real-life example of how it can potentially help you pay for your college or your kid's college. We'll see you.