Forget inside cash value buildup -- why don't more people take advantage of GUL as replenishment for college funding? Parent of college kid pays for tuition ($50k per year for four years = $200k). Parent takes out $200k GUL on grandma, age 70, Preferred, $4500 per year. Gram lives 20 years, costs parent $90k....Parent gets $200k when Gram passes away, at time when he needs retirement dollars.....IRR 7% tax-free, 9% pre-tax......fire away, what's not to like? Paid for $200k education for $90k plus time value of money.
Life Insurance for College Funding
- Thread starter mcouper
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This has been brought up before in a few different iterations. It's not wholly a bad idea. Some people will object to it on moral grounds.
The other issue is that it's sometimes difficult to get grandma issued at preferred when she's 70's.
The additional hurdle here is insurable interest. $200k isn't enough to push an insurance company into suspicion, but you have to be very careful on what you specifically say regarding insurable interest and your justification for insurance.
There's another slight problem with your figures. If grandma can get approved at preferred at age 70, it means she's expected to have better than average mortality, meaning she might live well past 90. Surviving just an additional 5 years will drop your IRR down to approximately 4.5%. That's still pretty good for a guarantee, but a good bit less.
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Good point re life expectancy - despite alot of Preferred's issued, not a lot of 90+ folks in obits somehow though. Moral grounds - not looking to sneak anything past Grandma - whether she gifts the premiums or parent pays them for her. It's basically life insurance as an asset class - wouldn't put all eggs in that basket, but not a bad idea, especially for a family w more than one kid attending college - maybe do this strategy with one of the two. Hedging bets is always a good idea....thanks for input.
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Few years back I wrote the policy on the parent instead of grandparent for educational purposes w/ nyl. Parent was issued preferred. 6 months later parent passes away. Proceeds goes into trust fund for child education. Grandparent still living.
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Thats because 16 years ago the life expectancy for a 60yo male was 78.
Fast forward to today with ever expanding medical knowledge, and a 60yo male's life expectancy is 84.
1 out of 4, 65 year olds today will live past 90.
1 out of every 10 will live past 95.
Still not bad odds for your idea, but its something to be aware of if your pitching this.
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One other area is insuring the Collage student. To cover the co signed student loan or home loan. Much smaller premium of course.
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Good luck w that - if it's cash they're looking to build on a kid policy, I'd opt for a 529 or Roth.....but, if cash flow isn't an issue for gramps, pitch a GUL to them with gramps as insured.
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