Paying for your child's college education is a scary thought these days. There are so many investment choices available it can be confusing. There are many good investment choices available and the best include specific college savings funds such as the 529 plan. Depending on one's financial situation, some families choose to use a Roth IRA as a college savings vehicle. But, all of these choices do have yearly limits as to how much money one can put into them and many families would like to have a guaranteed amount of college money available regardless of how the stock market fluctuates.
What is Endowment Life Insurance Policy?
Some families turn to endowment life insurance policies when adding security to their college savings portfolios. An endowment life insurance policy works two ways: It will work similar to a traditional life insurance policy where it will pay the face value to your beneficiary in the event of your death and it will also pay the face value of the policy if you outlive a set contract period. So, unlike traditional life insurance, you will get the face value of your life insurance policy even if you live. This is why it can be an attractive addition to a child's college savings fund. You can determine an amount you want to have in 10, 20, or 30 years and as long as you pay the set premium you will get the face value of the life insurance policy at the end of the life insurance policy period.
An Endowment Life Insurance Policy Pays Me if I live... So, What's the Catch?
Yes, it did sound great, right? Figure out how much you want, pay a monthly premium and at the end of the contract you have a guaranteed amount of money regardless if you live or die. Well, there is a reason why this is not the best first choice for a college savings plan: premium cost. Endowment life insurance policies do have very high premiums and the shorter your contract period the higher your premium will be. Endowment life policies are attractive for anyone who wants to be guaranteed a certain amount of money in a certain time period but because of the high premiums, it is best to only use an endowment life insurance policy after all other college savings options have been used.
Is There Anything Else I Should Know Before Purchasing an Endowment Life Insurance Policy?
There are some things to consider before just going to any insurance agent and purchasing any type of life insurance policy. Especially with an endowment life insurance policy, first check with an accountant and your tax advisor to see if an endowment life insurance policy is best for your situation. Using life insurance for a savings vehicle is, in most cases, not the best choice for an overall savings plan but should be used only in addition to other savings vehicles. Also, when looking for a life insurance agent and policy, shop around. Life insurance policy premiums can vary greatly from company to company so it can really pay off to take a look at various policies from different companies. And, don't forget to check out these guidelines before choosing any life insurance product (this is a senior citizens guide to buying life insurance, but it can serve anyone well in making life insurance purchase choices): A Senior Citizen's Guide to Insurance Planning
