Cash Value as a Tax-Free Source for College Funding

A Permanent Life Insurance policy, particularly Whole Life, can be strategically utilized as a supplemental, tax-advantaged funding source for a child’s college education, offering protection and growth outside of traditional savings vehicles.

The FAFSA Exclusion Benefit

Unlike 529 plans, savings accounts, or custodial accounts (UGMA/UTMA), the cash value of a personally-owned life insurance policy is typically **not counted** as an asset on the Free Application for Federal Student Aid (FAFSA). This exclusion can potentially increase the student’s eligibility for need-based financial aid.

Tax-Free Access for Education

When tuition is due, the policy owner can access the cash value via tax-free policy loans. The policy’s cash value remains intact (minus the loan amount) and continues to grow tax-deferred, unlike selling appreciated assets (which triggers capital gains tax).

Disclaimer: This content is for informational purposes only and is not financial or legal advice. College funding should be diversified; consult a financial advisor and a college financial aid expert.