Variable Life Insurance Policies
Written by Fiona Gu   


This Variable Life Insurance Policies Savings Option is ideal for families that want to avoid negative impacts on their children’s financial aid applications!
 
Variable Life Insurance Policies combine life insurance with a tax-deferred investment account. Also, they offer tax free access to the policy’s cash value.
Advantages Disadvantages
  • There are no negative impacts on the child’s financial aid application.

  • There is no limit on the investment amount.
     
  • Parents have control over the money
     
  • Can withdraw or borrow contributions tax-free without penalty
  • Expensive with high commissions and costs. The profit after subtracting the costs makes the policies less attractive compared to other saving options.
     
  • Premiums are not deductible and will eat into the potential gains from the money paid.
     
  • Withdrawals can lower death benefits. If more money is withdrawn than the premiums paid, then the difference is subject to income tax.
     
  • When an insured person borrows against or withdraws funds from variable life policies, he or she may transfer a fraction of remaining balance into a fixed-return account to be protected from any risks.
     
  • If death occurs prematurely, heirs would lose the value of the investment account and receive only the death benefit.
     
  • There are penalty charges for taking out funds before the 13th year. There for the policies are not very useful as a college savings method for families with very young children.
 

Tip: Parents with children who are more than 3 years old should not consider variable life insurance as a college savings medium.  Parents with children less than 3 years old would be better off investing in a section 529 plan. 



 
Last Updated on Tuesday, 21 December 2010 04:28