Yes, IUL can be used as an alternative college funding strategy. Cash value can be accessed via tax-free loans to pay tuition, and unlike 529 plans, IUL funds are not counted as assets on FAFSA financial aid applications.
While 529 plans are the traditional college savings vehicle, IUL offers some unique advantages for education funding.
IUL has higher fees than 529 plans and requires longer time horizons (10+ years) to build meaningful cash value. Start early — ideally when your child is a newborn — for best results. This strategy works best for families who also want the life insurance protection and have already maxed out other savings vehicles.
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IUL offers three major tax benefits: tax-deferred cash value growth, tax-free policy loans and withdrawals (up to basis), and an income-tax-free death benefit for beneficiaries under IRC Section 7702. Read more
You can borrow against your IUL cash value through policy loans, which are tax-free as long as the policy remains in force. Most policies allow you to borrow up to 90% of your cash value at competitive loan rates. Read more
IUL can be a good financial tool for high-income earners seeking tax-advantaged growth and those who have maxed out traditional retirement accounts. It is not a pure investment but a hybrid insurance-savings vehicle. Read more
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