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4 Key Features of IUL for College Planning

indexed universal life or a 529 plan

Reviewed By: Rob Pinner

Rob Pinner Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

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Fact Check By: Holly Mitchell

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

There are many reasons that you may plan for your death, one being the provision of an income for those that you love so that they are able to maintain their standard of life. There are different types of life insurance but typically the common goal is this death benefit protection.

Many people are surprised to learn that they can use IUL for college planning. It is the cash value accumulation feature of indexed universal life insurance that makes it a tool for funding your children’s college education.

When funded properly, an IUL policy can build up enough cash to help pay the cost of college for your children and grandchildren. Using life insurance for college savings simply makes a lot of sense.

To make it in this world, now more than ever before, it is important to have an education beyond high school, and that does not come cheap. Economic upheaval and the rising cost of living make it quite challenging for parents to put aside enough money to finance their children’s education.

It is possible to get maximum benefit by starting an indexed universal life insurance policy early to protect your family in the event of the death of a spouse. This same life insurance policy can also be used to help cover the cost of higher education. You are simply buying life insurance to pay for college.

If you didn’t know, college is expensive. In fact, it’s very expensive and getting more and more expensive every year. The average college student is going to face around $30,000 in debt by the time they graduate and there are a lot of students who will have much more debt than that.

If something were to happen to you, then your family could struggle to pay for those college expenses. For this reason, we recommend that families invest in life insurance for college savings so that two risks can be mitigated with one investment product.

indexed universal life for college


Again, starting early is key to any savings goal that you might have. LifeHealthPRO states that the “accumulation of funds inside an indexed UL product for college or other major costs is a long-term strategy.”

I can’t tell you how many times clients have come to me and ask me what they can do to start an education fund for their kids who are in high school. Although not impossible, starting college saving this late really makes it difficult.

When the kids are young many of us think of a 529 plan for college.  This is great, but there are limitations. Many times we suggest that indexed universal life be considered to help in the college planning process.

Death benefit protection, diversification, annual reset, and tax-deferred growth are the 4 key features of indexed universal life for college planning that make planning for college using indexed universal life insurance a winner.

Just like any great plan, you need to stick with it. While indexed universal life is not the only answer to college funding, sticking with your plan will make life much easier and enjoyable.

Some of us are thinking about how we will retire at about the same time that our children will be entering college. What better feeling is there than to know that you have financially prepared for that day by using life insurance for college savings?

Death benefit protection

The security of knowing that your loved ones will be well taken care of should you die is reason enough to buy life insurance. Many parents worry about what will become of their loved ones in case of their sudden death or the sudden death of their bread-winning spouse. This is well taken care of through indexed universal life insurance.

Diversification plus Protection from downward risk

With indexed universal life, you are able to grow your money through exposure to domestic and global markets. Indexes such as the S&P, DOW, NASDAQ, HANG SENG, and EURO STOX determine how much our how little your policy cash value will earn.

Because of a feature called annual reset, your money is protected from market downturns.  With this feature, you have no chance of losing what you have paid in premiums plus the prior interest that you have earned.

It is this cash accumulation that can be used easily for college funding. It is up to you to decide how the cash value of your indexed universal life insurance policy funds are to be used.

Tax-Deferred Growth Potential

With indexed universal life insurance, you get the benefit of building tax-deferred cash value that will be accessible to you in the future for whatever need you might have. This is a great benefit that you will not get in term life insurance.

Any premium payments that you will be making above the cost of insurance will be able to grow tax-deferred at whatever rate that the indexes you have chosen perform. This is a huge opportunity for you to accumulate wealth over time, which can be used for college, retirement or any other financial need you may have.

indexed universal life for college

How do I actually use indexed universal life insurance for college savings?

Now it is time to send the kids off to school. You have followed your plan and now have plenty saved for college. So how do you actually use indexed universal life for college?

Your funds can be accessed in a couple of ways. You can use policy loans or withdrawals.  I recommend that you would use policy loans.  Loans are not taxable and do not have to be repaid.

By using loans, your funds stay in the policy and continue to grow. In most cases, after college is over our clients are able to use this same policy to supplement their retirement income. Again, this is income tax-free.

Shopping for Life Insurance

When you’re shopping for life insurance, you might be worried about how much your insurance protection is going to cost. Don’t worry, there are several ways you can get more affordable life insurance to pay for college and provide financial protection.

Regardless of why you want to purchase indexed universal life insurance, it’s important you get the lowest possible rates.

When you apply for life insurance (regardless of which kind you are buying), there are dozens of factors the insurance company is going to look at dozens of different factors to determine how much they are going to charge you every month for the plan. Making a couple of changes could save you thousands of dollars every year.

How to Obtain Cheaper Life Insurance

One way to save money on your life insurance plan is to cut out smoking. If you’re a smoker, then you’re going to pay thousands of dollars more for your life insurance compared to what you would pay if you didn’t smoke or use chewing tobacco.

Smokers are going to pay at least twice as much for their insurance, and when you’re shopping for indexed universal life insurance, smoking is going to raise your premiums by hundreds of dollars.

Another way you can save money is to compare dozens and dozens of companies before you decide which one is best for you. Every insurance company is different, and all of them are going to offer you different rates depending on their rating system.

The rates you get from two companies could be hundreds of dollars apart. There are thousands of companies on the market that offer indexed universal life insurance, which means you could spend hours calling agents to find the most affordable insurance plan on the market.

Instead of wasting your time calling all of those agents yourself, work with an independent insurance broker. Independent insurance brokers are licensed like a traditional insurance agent, except they don’t work with only one single company.

Instead, they represent dozens and dozens of companies across the nation. With an independent agent, you can get a personalized set of quotes sent directly to you. They can save you both time and money on your life insurance coverage.

When you purchase an indexed universal life insurance policy to help with college funding, you are not just saving money. Not only do you have the savings but you have a much-needed death benefit.

We help people everyday plan for college and retirement using indexed universal life. I am not recommending you stop everything you are doing and run to the nearest indexed universal life policy that you see. With proper planning and a goal in mind, indexed universal life can help make your financial future much clearer.


We hope that you will use the form to the right or call us at 1-800-712-8519 to request a quote or to ask any questions that you may have about indexed universal life and college planning.

We know shopping for life insurance, especially indexed universal can be a confusing process, but that’s why we are here to help. We are a group of independent insurance agents and it’s our mission to give you the best plan possible.

You never know what life’s going to throw at you tomorrow, which means you shouldn’t wait another day to get the insurance protection you and your loved ones deserve. Regardless of why you’re buying the indexed universal plan, it’s vital your family has the life insurance coverage they need. If something tragic were to happen to you, and you didn’t have insurance, they would be stuck with massive debts, like college tuition.

Frequently Asked Questions

Is Indexed Universal Life a good way to save for college expenses?

indexed universal life or a 529 plan

If you start early, an IUL is a great solution for accumulating the funds you’ll need plus there are important additional benefits that other saving plans do not provide.

Can I lose money using an IUL for college planning?

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Your IUL policy will contain a FLOOR rate which prevents your cash account from losing money if the market performs poorly and loses money during the creditiing period.

Do I have to pay taxes when I withdraw the money from my IUL?

There is no tax liability if you withdraw money from your account via policy loans rather than a traditional withdrawal from an IRA. This will be especially important if you use the remaining funds in your IUL during retirement.

When will I have to pay back the policy loans?

Life insurance at age 33..

It’s up to you to decide when to pay your loans back or even if you want to pay loans back at all. Any outstanding loans would be deducted from the policy’s death benefit when you pass away.

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