Can Life Insurance Help Pay for College? One Tax Attorney Says Yes
With college costs continuing to be a major concern for families, most parents think about 529 plans, savings accounts, and investments when preparing for their children’s education. But one tax attorney highlighted in a recent People article is taking a different approach: using the cash value of permanent life insurance as part of his college-funding strategy.
Nashville tax attorney Brian Boyd purchased a whole life insurance policy when his son was a newborn. According to the article, he contributes approximately $600 per month to the policy, including additional contributions designed to increase its cash value.
Today, the policy reportedly has accumulated more than $100,000, with Boyd projecting that it could be worth nearly $265,000 by the time his son turns 18.
How Can Life Insurance Pay for College?
Certain permanent life insurance policies build cash value over time. Depending on how the policy is structured, the policyowner may be able to access that value through withdrawals or policy loans.
Boyd’s strategy is to borrow against the policy’s accumulated cash value to help pay his son’s undergraduate expenses rather than simply withdrawing all of the money.
This can provide families with another source of funds for expenses such as:
- College tuition and fees
- Housing
- Books and educational expenses
- Graduate school
- A future home purchase
- Other major financial needs
Boyd isn’t relying exclusively on life insurance. His family also uses a 529 college savings plan, traditional savings, and a money-market account. His approach demonstrates how permanent life insurance can potentially complement other savings strategies rather than necessarily replace them.
Why Some Families Consider Permanent Life Insurance
One attraction is flexibility.
A 529 plan is specifically designed for education and offers valuable tax advantages when the money is used for qualified educational expenses. Permanent life insurance, however, isn’t restricted exclusively to education.
Cash value accumulated inside a properly structured policy may potentially be accessed for college, retirement income, emergencies, a home purchase, business opportunities, or other financial needs.
At the same time, the policy provides something a traditional investment or college account does not: a life insurance death benefit.
It’s Important to Understand the Trade-Offs
Using life insurance as a savings or college-funding strategy isn’t appropriate for everyone.
Permanent insurance generally costs considerably more than term insurance, and cash-value growth can take time. Policy loans also accrue interest and can reduce the policy’s cash value and death benefit.
If a policy with outstanding loans is surrendered or lapses, there can also be significant tax consequences.
That’s why these strategies should be designed around someone’s overall financial situation rather than purchasing a policy simply because it can accumulate cash value.
Whole Life vs. Indexed Universal Life
The strategy described in the People article specifically involves a whole life insurance policy with paid-up additions, but whole life isn’t the only type of permanent insurance capable of accumulating cash value.
Indexed Universal Life (IUL) is another form of permanent life insurance that can build cash value.
An IUL’s interest-crediting potential is linked to the performance of a market index, subject to the policy’s caps, participation rates, floors, charges, and other provisions. The policy isn’t directly invested in the stock market.
When properly designed and funded, an IUL can potentially provide:
Life insurance protection today + cash-value accumulation + access to funds later.
That combination is why some families consider permanent life insurance as part of a broader strategy for education, retirement, and long-term financial planning.
The Bigger Lesson: Start Early
Perhaps the most important part of Boyd’s story isn’t the particular financial product he selected.
It’s that he started when his son was a newborn.
Giving money 15, 18, or 20 years to accumulate can make an enormous difference. Whether a family chooses a 529 plan, investments, permanent life insurance, or a combination of strategies, starting early provides more time for compounding to work.
The right solution depends on the family’s income, goals, risk tolerance, insurance needs, and time horizon.
Life insurance doesn’t have to be viewed only as something that pays when someone dies. Certain permanent policies can also become part of a family’s broader financial strategy while they’re living.
Life insurance policy loans and withdrawals reduce available cash value and death benefits and may cause the policy to lapse. Loans generally accrue interest. Tax treatment depends on individual circumstances and policy structure. Indexed universal life insurance does not directly participate in any stock or equity investment. Consult appropriate tax and financial professionals regarding your individual situation.