College Funding & Life Insurance

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With the current bull market roaring ahead, it’s vitally important to protect yourself from loss while your assets continue to grow. Seems intuitive, but difficult to implement without the proper financial tool.

According to the Allianz Life Insurance Company of North America, more than half of the respondents to their 2018 Life Insurance Needs Survey (Needs Survey) were unsure or didn’t believe that cash value from permanent life insurance can be used to assist with other financial needs.

That’s likely the biggest secret out there! Very few people are aware of the benefits to be had from a properly designed permanent life policy.

In fact, college funding can be one of those benefits.

It’s both amusing and quite sad that almost 70% of the respondents to the Needs Survey stated the belief that the ability to use funds to pay for college is a valuable feature to consider when purchasing a financial product.

Yet, those people and more “turn their noses up” at the very mention of life insurance, even when they know they are underinsured.

So, let’s answer some questions you may have (or, perhaps, never even considered)…

1. How can cash value (CV) life insurance be used to help fund college expenses?

While the main purpose of life insurance is to provide a death benefit (DB) to loved ones, the DB under a permanent life insurance policy properly designed to build the greatest cash balance possible is the minimum required by the IRS to ensure everything remains non-taxable.

Growth of the cash value is the primary benefit, the DB merely is an added benefit. The cash value can be accessed for any reason, such as college funding.

2. What are the benefits to using loans from CV life insurance for college funding?

Loans from CV are tax-free. Moreover, they are not considered income and, therefore, typically will not affect a family’s eligibility for financial aid.

3. I have 529 Plans. Why would I need CV life insurance?

The foremost advantage to using CV life insurance is that the government and the schools don’t see it as an available asset. It is not considered when calculating eligibility for financial aid.

529 Plan assets do count as an available asset and will affect eligibility for financial aid.

4. What if my child does not attend college?

Funds from a 529 plan must be used for qualified education expenses. Otherwise, if utilized for other expenses, the earnings portion will be considered part of the beneficiary’s income and will be subject to a 10% penalty.

Conversely, the CV life insurance can be used for any financial need, including debt elimination.

5. Can grandparents help?

Absolutely! There are many advantages to using CV life insurance to help fund a college education – no complex eligibility requirements, no qualified education costs, and no income limits. Furthermore, money received from a policy loan generally won’t impact eligibility for financial aid.

Now, bear in mind, life insurance does require health and financial underwriting. However, that’s a small price to pay for a financial vehicle that:

• Will be an important part of any properly designed and implemented college funding campaign;

• Can be used to eliminate all household debt much quicker than ever imagined; and,

• Can improve the retirement horizon for parents of college-bound children.

Contact us to learn how a properly designed cash value building, permanent life insurance policy can be the bulwark of your college planning campaign, while being used to eliminate household debt and improve one’s potential retirement scenario.

Funding College through Athletic Scholarships

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While it is possible for any child with physical talent to develop into an exceptional athlete, an athlete that attracts the attention of college recruiters and who is offered an athletic scholarship, the truth of the matter is this:

That athlete is the exception to the rule.

Approximately 4%-5% of all high school athletes will participate in a college sport. That athlete may or may not have been awarded an athletic scholarship.

A little known fact typically ignored or avoided by parents is this – there are only 6 full-ride collegiate sports, 2 for men, 4 for women. All 6 are at the NCAA D1 level (less than 2% of high school athletes will participate at the D1 level).

For men, those sports are basketball and football. For women, those sports are basketball, volleyball, tennis, and gymnastics.

Moreover, not every member of a collegiate athletic team, whether it is NCAA or NAIA, will have an athletic scholarship, or perhaps any scholarship whatsoever. Unless a student has been awarded a full-ride scholarship, if they have been awarded an athletic scholarship, it will be a partial scholarship, leaving the remaining expense of a college education to the student and their family.

There are a maximum number of scholarships each team may award, if the program is fully funded. Not all programs are.

So, if you are at the beginning, or somewhere in the midst, of years of athletic training, be absolutely sure your family will be ahead financially as the college years fast approach.

Let’s consider the expense of raising an athlete who will have a 1 in 20 chance of playing a sport in college…

Sure, when they’re young, the expenses seem insignificant. But, as they age, costs increase. Consider the following: monthly team or practice costs; uniform, equipment, and travel expenses; tournament or meet fees; and, private coaching (e.g., technique, strength, speed, etc.).

Certainly the numerous positive benefits should be considered. Benefits such as learning to perform under pressure, enhanced discipline, increased confidence, improved self-esteem, and learning to graciously handle both success and failure are priceless.

There are great reasons to support a child’s talents; they vary from family to family. If the primary driver is to fund a college education, remember the odds.

For a family concerned about their finances, potential health care expenses, and having an affordable, comfortable retirement, investing in an education-funding strategy that has less than a 2% success rate may not be a positive strategic move.

Please contact us for guidance in developing and implementing a college planning campaign designed with your family’s financial goals in mind.

Proper Planning Makes College Worth the Cost

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According to a recent Sallie Mae/Ipsos study, “How America Values College 2018,” more than 85% of families believe they are receiving good value for the price, with more than 20% saying college is worth every penny.

In conjunction with those beliefs, students and parents willingly stretch themselves financially to ensure a college education is received.

While taking steps to make college more affordable, steps such as reduction in discretionary spending, as well as taking classes over a shorter period of time in order to reduce costs by graduating sooner, are actions that can be taken, families have much more work ahead of them.

Many, perhaps most, families find the development and implementation of a college planning campaign to be quite confusing. In fact, lingering misconceptions exist and persist:

• More than 40% of families believe work-study funds are automatic. They’re not. Rather, they are awarded based on perceived need and only by the schools that actually participate in the federal work-study program.

• More than 20% of families believe “free tuition” means college is free. It isn’t. Expenses such as program fees, room, board, and a host of miscellaneous expenses will be borne by the student and/or family.

• At least 19% of families believe “sticker price” will be the cost of an education. It isn’t, unless the student and family has either done absolutely no planning or they have done everything incorrectly.

How can you be sure that your college planning campaign is on the right track?

Ensure your family is properly prepared.

Contact us for our no-obligation evaluation of your current campaign.

 

Keep Your Financial Aid – Avoid These Mistakes

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The pursuit of a 4-year college degrees requires a parent file the Free Application for Federal Student Aid (FAFSA) at least four times. Each filing generates a financial aid award letter.

The first award letter typically covers only the first year. As each family’s financial situation could change yearly, so could the award.

A mistake made by many families is believing the first letter covers all four years. Financial decisions made during this period could drastically affect financial aid.

Here are a few mistakes to avoid:

1. Grandparent Assistance. Grandparents may want to help. Here, as with many other aspects of life, timing is everything. Giving money at the wrong time can greatly reduce available aid. Money given by grandparents counts as income in the child’s name; schools assess a child’s income at a vastly greater percentage than they do a parent’s income, then reduce aid accordingly.

2. Cashing Out Investments. A cash out occurring after January 1 of a child’s sophomore year in high school will impact the first FAFSA filed on the child’s behalf, increasing income and thereby reducing financial aid. Selling those investments during junior or senior years in college will have little to no impact on aid.

3. A Second Mortgage. Parents taking a second mortgage may end up with too much cash on hand. Too much cash equals less financial aid. A home equity line of credit (HELOC) may be a better solution and may increase aid at a select number of schools who consider home equity as cash on hand. However, there are still interest costs and any amount loaned must be repaid.

4. Raiding Your Retirement. While more than 57% of parents across the country indicate they will raid their retirement funds, it’s not the greatest strategic move. Pulling funds from these plans increases taxable income. Not only are you taxed, but you lose financial aid due to increased income.

If you have a college-bound student, whether they are currently in high school, middle school, elementary school, or the crib, please contact us to schedule a free, no-obligation evaluation.

We can tell you the wisest and safest place to place and build your college funding.