Life insurance and college

The sound version

If you intend to fund your children's education and you die before it's paid for, that intention disappears with your income. Sizing your term coverage to include education is straightforward and inexpensive.

Work out what you plan to contribute, in today's terms, and add it to your coverage calculation. That's the whole exercise.

The version to be sceptical of

Using a permanent policy's cash value as a college savings vehicle. It's pitched on flexibility and on financial aid treatment, and it deserves harder questions than it usually gets.

Permanent policies carry insurance costs and expenses that a savings account doesn't, surrender charges apply for years, and early cash values are typically far below premiums paid. Money you'll need in a defined year is exactly the money least suited to a product with those characteristics.

Questions to ask if it's proposed

• What is the guaranteed cash value in the year my child starts college?
• What are the surrender charges in that year?
• What are the total policy charges each year?
• How does accessing the money affect the death benefit?
• How are you compensated on this compared with the alternatives?
• What happens if I can't sustain the premium?

The aid argument

Financial aid treatment of assets is genuinely complicated and it changes. Any presentation that leans on aid treatment as the main reason to buy insurance is making a policy decision on a moving target.

If that's a real concern, take advice from someone who works on financial aid specifically, and confirm the current rules — not from a product illustration.

The order that usually works

• Term coverage sized to include the education you intend to fund, so the plan survives you
• Dedicated education savings vehicles for the saving itself
• Retirement savings, which generally shouldn't be sacrificed for education
• Permanent life insurance only where there's a genuine permanent insurance need