Mass Mutual 10 Pay for Funding Kids' Education?

[AlTheGud1sRtakn]

As others have said - yes, it can be a great idea. No, you're not going to get an actual 7% return as there is a cost of insurance involved. It's nice in that it's non-correlating and paid up, they could have that policy for the rest of their lives just slowly growing without them thinking about it if you decide not to pull funds out for college. Having it not count against financial aid calculations can be helpful as well.

On the 529 plans though, don't get hung up on market crashes making all of your money disappear right before you need it. You can use what's called a Target Date Fund to maximize your growth potential early on then limit your market exposure as you get closer to the date you expect to start withdraws. While I'm not a fan of target date funds for things like retirement that can span several decades, they can make a lot of sense for for quick events such as going to college for 4 years. Not sure who the 529 sponsor is in your state so your options may be different, but here's what most of my clients use through American Funds for their 529 plans. https://www.americanfunds.com/individual/products/target-date-college-series.html

 

[rayluk]

Typically you need about 10 years "runway" to make this idea works - both for 529 and life insurance plan to fund college. You have short accumulation period + even shorter distribution period (4 years or less). That is different from your typical retirement saving and spending time frame.

If you are leaning toward using 10 pay to fund it; and the front and center purpose is to funding for college - put the policy on yourself, and max fund it with "paid up addition." You will see a better result as time comes - typically in the high 3 and low 4% IRR. It is a conservative way to save for college.

Do not put it on the kid for college funding alone, it does not work well because of MEC limit. Besides, if you die before the kid gets to college, the death benefit will be paid out from your policy for your kid's college - it still accomplish the goal you want.

 

[L5tc]

Well said! And I should have thought of that!

 

[EAJoe]

Mass Mutual's whole life product is great for this. They have an incredibly strong dividend paying history, and have multiple companies profit's paying into the dividend. As other's have said, you won't get a 7% net return. See if you can get a new illustration with the internal rate of return, meaning the rate of return on the cash value accumulation after policy expenses/mortality charges are factored in.

Also, the GIO is a great way to ensure that your child can purchase more insurance down the line regardless of health. If you purchase it, make sure you choose the "paid up additions" option for your dividends, and consider using the ALIR (additional life insurance rider). It allows you to pay a small amount above your premium to purchase extra paid-up additions, but be careful not to create a MEC, which would eliminate all the tax advantages.

 

[BNTRS]

As long as you have more than 10 years before needing to pay MassMutual will be a good option. Mass makes some higher than normal expense assumptions for years 1 through 10 on its whole life products and tends to lag competitors in this time frame. After this point, they are generally a top competitor.

I wouldn't use the the child as the insured for the 10 pay. If you die before college starts you've potentially accomplished little more than a semi-funded policy that still may need premiums. Policy on the parent means death benefit can ensure cash if you die.

You also have the flexibility of taking policy loans to pay for college and repaying those loans to leverage cash for your use later. Since loans don't remove your money from your policy, Mass will continue to credit guaranteed interest and pay dividends on values that you've pledged as collateral for the loan. This will compound earnings on this money that puts you further ahead by simply paying the loan off vs. simply starting over at zero to save for retirement once college is over and out of the way.