The FAFSA and CSS are both detailed financial profiles of those seeking financial aid for college. Proper planning can greatly increase the amount of both public and private aid offered for college. Life insurance can occassionally be used to protect assets from being counted in financial aid formulas or provide income not subject to finanical aid formulas or income tax.
When using life insurance as part of a college financial aid strategy, the main advantages of a life insurance policy are:
- The money is sheltered from the financial aid need analysis process and so has no impact on financial aid.
- There are no limits on the amounts you can invest.
- The parent retains control over the money.
- One can withdraw or borrow contributions tax-free without penalty.
The main disadvantages are:
- Cost.
- Lack of flexibility.
People with larger cash balances (more than your annual income) that are unusual due to a business buy-out, bonus or inheritance can unfairly be denied some financial aid that they may have recently been eligible for. In these cases, a family may choose to place money into a life insurance contract to better qualify for college financial aid. There should be a need for life insurance to begin with- there usually is- and families ought to consult a planner experienced in this sort of planning. There are policies that are low cost and don't require long lock down periods on the money. Use a policy that will enable you to have access to your money if you should need it in the short run. You will usually want to max out retirement plan savings before utilizing life insurance for college finanical aid planning, as retirement plan assets are usually not counted in financial aid formulas.
Contact me to discuss your situation.
For more complete information, visit my Education Planning page at my financial planning website.
