I have been hosting a free workshop called Money, Mommy & Me going on four years now, and this is one of the most common questions that I get asked – Why have I never heard of this Million Dollar Baby Plan before? Using Life Insurance, specifically cash value life insurance (like whole life or indexed universal life) to save for college is a lesser-known strategy, and doesn’t get as much attention as 529 Plans for several reasons. Let’s break them down …
1. 529 Plans Are Government-Backed and Publicly Promoted
- 529 plans are state-sponsored and widely endorsed by financial institutions, schools, and government agencies. That gives them visibility and legitimacy in the public eye.
- Many people assume government-backed = safest or best, which creates trust and drives adoption.
2. Clear Purpose
- A 529 is purpose-built for education—you put money in, it grows tax-free, and withdrawals for qualified education expenses are also tax-free. Now, don’t forget to read the fine print. Because 529 Plans are for education purposes only, there are a number of restrictions that you need to be aware of, not to mention, if not used for education, you may lose the tax advantage and incur penalties when withdrawing your money.
- 529 Plan rules are publicly explained, whereas using life insurance for this purpose requires a more detailed understanding of how life insurance works. Most people think life insurance only pays out when the insurance passes away. They are not aware of the uses of life insurance while you are still alive—and there are many.
3. Life Insurance Is Oftentimes Misunderstood
- Permanent life insurance policies (used for college funding strategies) are paying for life insurance as well as saving for college funding.
- The words “life insurance” turn many people off when the goal is saving, not insuring.
- Financial media often caution against these policies because they have to be structured properly which can create some skepticism.
4. Financial Advisors Often Specialize Differently
- Advisors tied to banks or investment firms typically don’t sell life insurance products, so they push 529 plans.
- Conversely, insurance agents may promote life insurance for college funding—or other things such as Living Benefits, Tax-Free Retirement accounts, Legacy (passing on wealth), Key-Man Insurance and Protection (what most think of when they they hear life insurance—Death Insurance).
5. Perceived Risk vs. Reward
- People are often warned about the cost and complexity of life insurance.
- If not designed properly (e.g. overfunded, low-cost structure), it can underperform or not work as intended.
- That fear makes people hesitant—even though it can be a powerful and flexible strategy when done right.
6. Marketing and Public Perception
- 529s benefit from mass marketing and educational campaigns.
- Life insurance strategies are more relationship-driven and less advertised, so they spread more slowly.
In Summary:
529 plans can seem easy on the surface because they are solely used for education; however, there are many restrictions to beware of before starting one. You also need to consider what to do if the account is not needed—such as your child doesn’t go to college or better yet, gets a full-ride.
Life insurance, while more flexible (e.g. funds can be used for anything, not just college), is a more complex, less advertised, and more misunderstood—especially when used as a savings strategy. However, can be a fantastic way to save for college or other major life events, such as down-payments on first homes, cars, weddings, etc. I have personally used mine for a number of things through out my life, and continue to use it today as an emergency fund and part of my retirement plan.
Would you like more information on what this might look like for your situation—schedule a free no-obligation appointment below by clicking on my name or come to one of our Money, Mommy & Me workshops.
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