Hiding College Funds in Life Insurance
One of the things that really irritates me is when I see so-called professionals trying to rip offfamilies who are worried about how to pay for college costs.
A woman emailed me yesterday to ask about a firm that is suggesting that the best way to obtain financial aid is to hide her money in a cash value life insurance policy. Here is her note:
Hi Lynn,
I am a recently divorced woman in my early fifties. I have 2 children who will be starting college soon (within 1-4 years from now). As part of my divorce settlement, I received $150,000 in cash. I have returned to work after a long time away, so I am trying to plan for retirement as well.
I attended a college planning seminar and followed up with this company. They have told me that I need to purchase a whole life insurance policy, as this will reduce my liquid assets on the FAFSA form, and will enable me to get more financial aid.
I feel this is an extremely expensive way to go, and I am trying to figure out other options that will not strip my of my cash and enable me to plan for retirement. What are your thoughts on this?
I don't always respond to people who email me because I'm usually swamped, but I immediately emailed this woman because she was clearly on the verge of getting ripped off.I told her that I would stay far away from anyone who recommends that she sink money into a whole life insurance policy to increase chances for financial aid. These insurance agents are simply trying to make a fat commission off her. The agents typically don't know anything about college funding. Their cynical solution to every situation is to buy expensive insurance.
What Counts in Financial Aid Calculations
Whether or not you receive financial aid is driven primarily by your income. Another major factor is the number of children you have - the more the better for financial aid purposes.Parents can also shield money from financial aid calculations through a federal asset allowance. For instance, if you are 55 when your first child starts college, you would be able to shield $60,200 in assets. And the rest of the money would only be assessed at 5.64%. Also, retirement assets don't count at all in the calculations.
To find out more about what counts and what doesn't count in financial aid calculations, read: Why Saving for College Won't Hurt Financial Aid Chances.
And stay away from the insurance peddlers!
Lynn O'Shaughnessy is the author of The College Solution and she also write a college blog for TheCollegeSolutionBlog.
Life insurance image by Leo Reynolds. CC 2.0.
