Comments on: Is Gerber Life Insurance a good idea? http://totalcandor.com/blog/2009/04/is-gerber-life-insurance-a-good-idea/ A Conversation About Income, Wealth, and the Steps in Between Thu, 18 Mar 2010 01:33:32 -0700 http://wordpress.org/?v=2.8.5 hourly 1 By: Michael http://totalcandor.com/blog/2009/04/is-gerber-life-insurance-a-good-idea/comment-page-1/#comment-137056 Michael Thu, 14 May 2009 13:23:45 +0000 http://totalcandor.com/blog/?p=533#comment-137056 @Alison: I'd answer the question like this: If, when you apply for financial aid you had a choice of showing $1,000 of a non-counted asset (life insurance cash-value) and a $1,000 of a counted asset (regular taxable brokerage account), you'd of course choose the non-counted asset. But there's more to it. There's significantly more expenses to the whole life insurance policy during the first 15 years of life since the insurance company promises a flat premium rate for life. The premiums greatly exceeds the cost of the insurance, but you do have to pay it (that's where the cash value comes from). Still, you're going to have some mortality expenses you'd have to pay, lowering the amount you have by age 18. Second, there will be other administrative expenses to pay. Finally, how are you going to actually get the money to pay for college? If you're wealthy enough to pay it from money in "some other account," this exercise is irrelevant - you're not getting financial aid anyway. But if you need the cash, to take it out of the whole life policy means a loan (and interest you'd pay on it) or an outright taxable withdrawal (at ordinary, not capital gains rates.) While this is (believe it or not) an overly simplified explanation, the fact remains that there are much better ways to save for college than a whole life insurance policy for a kid, starting with a 529 plan. @Alison: I’d answer the question like this: If, when you apply for financial aid you had a choice of showing $1,000 of a non-counted asset (life insurance cash-value) and a $1,000 of a counted asset (regular taxable brokerage account), you’d of course choose the non-counted asset.

But there’s more to it.

There’s significantly more expenses to the whole life insurance policy during the first 15 years of life since the insurance company promises a flat premium rate for life. The premiums greatly exceeds the cost of the insurance, but you do have to pay it (that’s where the cash value comes from). Still, you’re going to have some mortality expenses you’d have to pay, lowering the amount you have by age 18.

Second, there will be other administrative expenses to pay.

Finally, how are you going to actually get the money to pay for college? If you’re wealthy enough to pay it from money in “some other account,” this exercise is irrelevant – you’re not getting financial aid anyway. But if you need the cash, to take it out of the whole life policy means a loan (and interest you’d pay on it) or an outright taxable withdrawal (at ordinary, not capital gains rates.)

While this is (believe it or not) an overly simplified explanation, the fact remains that there are much better ways to save for college than a whole life insurance policy for a kid, starting with a 529 plan.

]]> By: Alison http://totalcandor.com/blog/2009/04/is-gerber-life-insurance-a-good-idea/comment-page-1/#comment-136996 Alison Wed, 13 May 2009 21:59:46 +0000 http://totalcandor.com/blog/?p=533#comment-136996 Hey Michael - I recently had someone argue that whole life was a good choice for college planning - her argument was that it is not looked at as an asset in the financial needs analysis for scholarships, grants, etc. I haven't researched this - what are your thoughts? Hey Michael – I recently had someone argue that whole life was a good choice for college planning – her argument was that it is not looked at as an asset in the financial needs analysis for scholarships, grants, etc. I haven’t researched this – what are your thoughts?

]]>