How to Use Permanent Life Insurance to Fund Your Child’s Education

When most people think about saving for a child's education, the first thing that comes to mind is a 529 plan, While those plans offer some tax advantages, they also come with limitations: qualified expenses only, penalties for non-education use, and exposure to market volatility, But what if you could fund your child’s future without those restrictions—while also building long-term protection?

That’s where permanent life insurance comes in.

Permanent life insurance, such as whole life or indexed universal life (IUL), provides lifelong coverage and builds cash value over time, A portion of your premium goes into a cash value account that grows tax-deferred, and when structured properly, this money can be accessed tax-free through policy loans or withdrawals.

Unlike term life insurance, which expires after a set period, permanent life insurance is designed to last your child's entire life and can serve as both protection and a wealth-building vehicle.

Why Use Life Insurance to Fund a Child’s Education?

No Restrictions.

There are no use restrictions. With a 529 plan, the money must be used for qualifying educational expenses, or you'll face taxes and penalties. With permanent life insurance, you’re not locked in. The cash value can be used for anything—college tuition, a first car, wedding expenses, travel, business startup capital, or even a down payment on a home.

Tax-Free Withdrawals.

You can make tax-free withdrawals. When structured correctly, policy loans and withdrawals against the cash value are not considered taxable income. That means you can fund education costs or other milestones without triggering taxes or impacting financial aid eligibility the way other assets might.

Access the Money When You Need It.

You don’t have to wait until your child is in college. Need funds at 16 for a pre-college program? Or what if your child decides not to go to college at all? No problem. You still have a financial resource that can be used at any time for any reason.

Market Protection.

Indexed universal life policies allow your cash value to grow based on market performance without risking principal in market downturns. This provides a balance of growth potential and safety that traditional savings vehicles may not offer.

Teaches Financial Literacy.

As your child grows up, a properly managed policy becomes a tool for teaching personal finance, responsibility, and long-term planning. Instead of being handed money, they’re being handed a financial foundation they can build on throughout life.

Real-Life Example

Imagine you purchase an indexed universal life policy on your child when they’re a newborn. You contribute $250 per month until they turn 18. By that time, the cash value could be substantial—often tens of thousands of dollars depending on policy performance.

At age 18, your child wants to go to college. You take a policy loan to pay for tuition, tax-free. The death benefit remains intact. Years later, if the policy is still in force, your child can use it again in adulthood to fund a business, buy a home, or even help pay for their own child’s education.

Additional Benefits to Consider.

Your child gets guaranteed insurability. They’ll always have life insurance, regardless of future health issues. Many policies also include living benefits, meaning funds can be accessed early in the case of critical or chronic illness. Over time, the policy becomes a multi-generational financial tool that can support your family for decades.

Is It Right for You?

Permanent life insurance is not a one-size-fits-all solution. It takes commitment and thoughtful planning. But if you want a flexible, tax-advantaged way to save for your child’s future, it can be one of the most powerful tools available.

You’re not just saving for school. You’re building a foundation for life.

If you’d like to see how this strategy could work for your family.

Click here to set an appointment with a licensed agent who can create custom illustration based on your goals and budget.