Life insurance on the other hand allows you to use the money for any purpose you want. You can take a loan from your policy tax free, and use it for any purpose you choose, not just educational expenses. Policy values can be used for off campus housing, household repairs, financial emergencies, and more – all tax free (so long as the policy remains in force). Let’s take a look at how a life insurance policy is structured.
To begin with, let’s review the different features of permanent life insurance. Permanent life insurance has two components: a (generally) tax-free death benefit, and a cash account. The cash account grows tax free for the life of the contract. This cash value can be accessed via a loan for virtually any use imaginable. Generally speaking, the cash value growth in a life insurance contract, depending on the type of policy, either relies on the profits of the insurance company (whole life), or one of the stock market indices’ returns (Indexed Universal Life, or IUL for short). When done early enough and properly structured, life insurance can provide stable tax free gains that will allow your cash values to grow to be able to be used for college funding (or any other purposes). See the chart below for a comparison between life insurance and a 529 plan.