1. Whole Life Insurance
An Alternative
to Education Funding
College planning for your child can begin in their infancy. The
plan that you will be putting into place now needs to be able to
perform many years down the road. Traditional college plan-
ning utilizes a 529 plan. Although 529 plans have favorable tax
treatment for qualified education expenses, as well as a state tax
deduction in some states, they’re not for everyone.
An alternative option is whole life insurance. Unlike a 529 plan,
premiums payments for a whole life insurance policy are not
state tax deductible. However, whole life insurance has some
of the same contribution, accumulation, and distribution tax
features of a 529 plan, and also offers additional benefits.
Why Whole Life Insurance?
In order to take advantage of the tax benefits for distributions
from a 529 plan, the distributions must be for qualified educa-
tion expenses for the named beneficiary. Non-qualified with-
drawals will be subject to taxes on the earnings in the plan, plus
an additional 10 percent penalty. Your whole life policy would
allow you to borrow money on a tax-free basis via policy
loans*, and doesn’t limit or restrict your use of the money.
The loans received from the whole policy may be taxable if you
let the policy lapse, or if the policy is a modified endowment
contract.
The funds in a 529 plan can be tied to market return, provid-
ing a potential increase in account value year after year. But
what if your child started college in 2009 when the market
crashed? Depending on investments you selected in your 529
plan, would you feel comfortable in your ability to pay for their
college? Whole life insurance has guaranteed cash value that is
not subject to market volatility and also provides an income
tax-free death benefit to your beneficiary which can be used to
pay for your child’s college education in the event of your death.
The cash value in whole life insurance, however, grows over time
as you pay premium. In the early years of your policy, the cash
value may be less than your premiums paid. Therefore, whole
life insurance may not be an effective college savings vehicle,
especially if you start the policy later in your child’s life.
Consider disability. If you were to become disabled, would you
be able to cover your living expenses and still contribute to a 529
plan? 529 plans offer no options to fund the plan if you become
disabled. Whole life insurance has an optional waiver of pre-
mium rider that if chosen, can continue to pay the premiums
while you’re disabled, ensuring the plan you put in place stays
on track.
When applying for financial aid, your 529 plan would be
identified by FAFSATM
as an asset to you, if you are the account
owner, and would be recognized in your family contribution
level toward college costs. Some colleges have the ability to view
life insurance as an asset in determining financial aid. However,
when applying for financial aid directly through FAFSATM
, the
cash value inside your whole life insurance policy would not
count as an asset to you, under current FAFSATM
guidelines.
Whole life insurance can play a key role in paying for your
child’s college, whether it is stand alone or alongside a 529
plan. Although it does provide additional benefits, there may be
situations where whole life insurance may not be appropriate.
If not put in place when the child is young, the life insurance
policy may not build enough cash value to properly cover college
expenses. The additional benefits that whole life insurance does
provide, together with the tax-preferred access to cash values, can
make it a valuable tool for college funding.
Whole life insurance and 529 plans
Call me; let’s talk about planning
for your child’s college education:
The Ohio National Life Insurance Company
Ohio National Life Assurance Corporation
One Financial Way
Cincinnati, Ohio 45242
Post Office Box 237
Cincinnati, Ohio 45201-0237
Telephone: 513.794.6100
www.ohionational.com
Form 2935 7-14
© 2014 Ohio National Financial Services, Inc.
*If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance
policies classified as modified endowment contracts may be subject to tax at the time the loan or withdrawal is taken and,
if taken prior to age 59½, a 10% federal tax penalty may apply. Withdrawals and loans reduce the death benefit and
cash surrender value. Withdrawals from 529 plans are tax-free if used for qualifying education expenses.
FAFSA is a registered trademark of the U.S. Department of Education
Whole life insurance is issued by The Ohio National Life Insurance Company on policy form 06-PW-1 and any state
variations. Waiver of Premium for Total Disability Rider is issued on form number 82-LWP-1 and any state variation.
Guarantees are based on the claims-paying ability of the issuer. Dividends are not guaranteed. Products, product features,
and rider availability vary by state. The issuer is not licensed to conduct business and products are not distributed in
Alaska, Hawaii, or New York.
Clients should consult their own tax advisors regarding the comparative tax benefits of 529 plans, as well as
the potential taxation of distributions from both 529 plans and whole life insurance policies.
APPROVED FOR CLIENT USE.
Tari Watkins (858)472-0768 or JoinWealthWave.com/tari/