The primary purpose of life insurance is to provide a death benefit to beneficiaries. It can be designed to meet your clients’ changing needs with features such as a flexible death benefit and flexible premiums. The death benefit protection can make life insurance an attractive choice for establishing a self-completing plan to help fund a college education. Permanent life insurance that can accumulate cash value may be used to help pay for college costs.

Client Profile:
The typical client profile may include:

• Those with a need for life insurance protection
• Young families with children aged zero to 13
• People concerned about college tuition costs
• Those who are possibly looking to help supplement income in retirement years

Helpful Tips:

• The life insurance coverage should be on the primary breadwinner. Aim for the lowest death benefit possible that meets the client’s needs and still provides ample funding for college should death occur before the first child enters college.
• Since the policy can help to supplement retirement income, the client may want to keep the death benefit low for the longest period of time possible. Use the guideline premium test (GPT), keeping in mind that the death benefit may be higher in the early years, but lower for a longer number of years because the death benefit can corridor quickly with the cash value accumulation test (CVAT).
• Illustrate both variable interest rate loans¹ and zero cost loans.² It’s impossible to forecast what the interest rate environment will be in the future. Planning for both scenarios can increase your credibility with the client and can provide reasonable expectations.
• You can set up the illustration as a defined benefit (a specific college cost) or a defined contribution plan (a specific premium payment).
• Determine whether to pay for annual college bills or to repay student loans. The older the child, the more beneficial it is to repay student loans, as this provides more time for the cash value to grow. Be mindful of the timing at which each child will enter/exit college.
• Determine whether to continue funding the policy after the college period is over. This decision depends upon the client’s retirement goals.

Sample Cases: Builder IUL Indexed Universal Life Insurance
Peter and Elizabeth are new parents and feel it’s important to plan ahead for their son’s (currently 3 months old) future. They realize that should something happen to Peter, the primary breadwinner, it will be challenging for Elizabeth to keep up with expenses and help pay for college. The couple meets with their life insurance agent to discuss their need for immediate death benefit protection along with financial protection for their loved ones in the future. While discussing their situation, their agent tells them that life insurance may also be used to help fund their son’s education. After a needs-based analysis, the couple plans to pay $500 per month in premiums for the Builder IUL policy with a death benefit amount of $180,000. The couple is pleased with the death benefit protection and the flexibility it provides. The policy projects that they can take net zero cost loans of $45,519 for four years beginning in year 18 to help pay for their son’s college education.

View illustration

1. The net cost of a variable interest loan could be negative if the credits earned are greater than the interest charged. The net cost of the loan could also be larger than under standard policy loans if the amount credited is less than the interest charged. In the extreme example, the amount credited could be zero and the net cost of the loan would equal the interest rate charged on variable interest loans (which has a maximum, typically of 10%). In brief, Variable Interest Loans have more uncertainty in both the interest rate charged and the interest rate credited.
2. Zero Cost Loans are loans charged and credited at the same percentage for a net zero cost. The policy year and amount available vary by product. Please refer to the specific product marketing guide or contact the marketing department for details.