Maryland Annuity Resource offers College planning services in Maryland, Washington D.C. and Virginia. We do not offer 529 plans but have several pages within this website that highlight advantages as well as disadvantages to 529 plans. We do however offer Indexed Universal Life Insurance and believe that this insurance product has way more flexibility for funding college than 529 plans.
College tuition should be paid for with personal savings, however banks and other investments vehicles just don’t offer returns like they used to. I remember distinctly my first bank CD. They offered me 8% for a 6 month term and that should give you a little clue of my age. Sadly though times are not like they used to be and you just don’t know about the future anymore.
The good news is that insurance companies have been there and will always be there and this page is here to shed a little light on the main differences between 529 plans and IUL so we hope you read and understand our bias.
There is another option for College funding that is not so well known, it’s called Indexed Universal Life Insurance. IUL overcomes some obstacles and some of the inherent limitations of all versions of 529 plans. We do not offer 529 plans but agree that many have already funded them so for many clients, a combination of a 529 and an IUL provides benefits they did not know were possible. Lets shed a little light on the subject.
There are several severe drawbacks to 529 plans. Your deposits are invested in mutual funds and is not protected from crisis selling and market losses. Your deposits must be used for education or a substantial severe penalty is incurred. The total sum of savings in a 529 may impact eligibility for financial aid when you apply for scholarships, grants, and other forms of financial aid.
Indexed Universal Life is a new type of whole life insurance that also has what is called “Living Benefits” and is sometimes used to compliment a 529 but we must say again that we do not like 529 plans because of the potential for loss. Extremely high risk of loss of savings due to a market downturn, similar to the crisis of 2008, is virtually eliminated with Indexed Universal Life Insurance. The premium is protected against severe market losses and you have the opportunity for growth as the market index grows. Interest credited is locked in and cannot go down.
Cash Value inside of your Indexed Universal Life policy is yours and available for any purpose you want, tax free and at any time. IUL has no penalty if you decide to, or need to, use the money for something other than paying college tuition. The best thing is that the cash value inside the policy has no bearing on financial aid, grants, scholarships, or EFC (effective family contribution). It is a very important consideration, particularly for families with multiple children either 1 to 3 years apart from college age.
Some of the major difference between a 529 plan and Indexed Universal Life Insurance are:
- Security and Protection against losses of capital during market downs (IUL=Yes)(529=No)
- Growth of Cash Values with upside of market gains (IUL=Yes)(529=Yes)
- Growth of deposits with interest grow tax free (IUL=Yes)(529=No)
- Could affect Financial Aid eligibility status (IUL=No)(529=Yes)
- Funds available penalty free for use other than education expenses (IUL=Yes)(529=No)
- Dual use to provide a Death Benefit (IUL=Yes)(529=No)
There are more Yes’s for IUL than the 529 plan but we just wanted to point out how choosing the right plan can ensure the right benefits for the future. We do not offer 529 plans because of the potential loss of deposits and gains.