Six Reasons

6 Reasons your 529 Plan SUCKS

And why you should consider using

Guaranteed Indexed Universal Life Insurance


Life insurance is or should be the foundation of your financial, retirement, or estate plan, but why would anyone use Guaranteed Indexed Universal Life Insurance as a funding vehicle to pay for college education? There are numerous reasons.


  1. It is Self Completing

Most importantly….. Guaranteed completion. By that, I mean a life insurance plan has the ability to guarantee that a savings target will immediately self-complete the college funding should the insured pass away. 


  1. Flexibility 

According to the Internal Revenue Service, money in a 529 college savings plan can only be used for “qualified education expenses” including tuition, fees, books, and room and board at an accredited U.S. school.

As a proud father of Monmouth University Grad, I noticed that not only is there room & board, books and tuition but they eat a lot food at college,  need clothes, extra money for “fun ” weekend stuff  and yes…. Beer.

Should your child opt out of college, choose a foreign or unaccredited school or receive a full scholarship, you can transfer 529 funds to another beneficiary if there is one or pull the funds out and pay income tax on the withdrawal. You may also have to back taxes if you’ve taken state tax deductions over the years as well as a 10 percent penalty on earnings.

Using permanent life insurance, it doesn’t matter how you use the cash. A student can use life insurance savings for college, a down payment on a house, to start a business or for retirement, or for that fact, one hell of a Key West vacation or the policy owner can use the funds for their very own Key West vacation.


  1. Market Risk 

Section 529 college savings plans usually invest in mutual funds and other market related products that will fluctuate with that market.

As witnessed in 2015 and starting in 2016, the markets ups and downs can take a good chunk of your savings. A Guaranteed Indexed Universal Insurance (GIUL) policy can provide a guaranteed fixed 3% NO MATTER what how steep the market drops and any accumulated funds in your indexed account CANNOT be lost.

Guaranteed returns can cap your earnings. Should the market generate returns above the fixed cap on your policy, life insurance holders may not earn any additional cash up to the cap. Caps may vary by the insurance provider and policy. These Caps can vary from no cap to 12 or 13%.


  1. Contribution Limits

Contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.

There are no contribution limits in using a permanent life insurance policy. You can put as much into the policy as you wish BUT your advisor should prevent the policy becoming a Modified Endowment Contract (MEC) or it will create a taxable event.

Unlike 529 plans, some life insurance policies use a tiered system when doling out returns. The more you invest, the better your return rate. To maximize earnings, purchase a policy with a low death benefit and to contribute the maximum


  1. Financial Aid

One of the major advantages to using a cash value policy for college savings is that money in an insurance plan won’t reduce your financial aid. Money in a 529 college savings plan can subtract up to 5.6 cents in aid for every dollar stored in the account, but cash value policies are sheltered from the federal financial aid formula, according to the Department of Education.

Money taken from a life insurance policy should be taken as a withdraw to basis, followed by 0 wash loans in order for distributions to be tax free.

Taking a loan against a life insurance policy won’t count against your financial aid but will reduce your death benefit should you die. Cashing a policy out entirely will count as income,  reduce your aid package by up to 47 percent and could incur surrender charges as it is then counted as income.

Families with low assets are already protected from losing federal financial aid dollars. According to the Department of Education, families can hold up to $74,000 in assets — including real estate outside the primary home, stock market investments, savings accounts and college saving vehicles — without impacting their federal aid. Exactly how much depends on the age of the oldest parent.


  1. Cost

According to Morningstar, Section 529 administrative and advisory costs can range from 0.25 percent to 1.85 percent. While at face value they appear low. But these fees are based on your account balances regardless if there are gains or losses. So as your balance grows, the more they take.

Yes, there are fees for life insurance as well, but most insurance companies charge on the premium and cost of insurance NOT the account value. Current administrative costs are as little as $8.00 per month and a premium load of around 5 – 7%.

Do the math, you may be well…..shocked.



As with the old real estate saying location, location, location, with Guaranteed Universal Life Insurance, it is Guarantees, Guarantees, and Guarantees.

It is important to have a Guaranteed Universal Life Insurance policy that provides:

  1. A Guaranteed Death Benefit
  2. A Guaranteed Fixed Interest Rate
  3. A Guaranteed Premium Rider
  4. A Guaranteed 0% Floor to prevent losses from Market Downside
  5. A No Lapse Guarantee
  6. An experienced Insurance Advisor


While a Guaranteed Indexed Universal Life Insurance Policy may not be suitable for everyone, it may payoff to investigate further.

Contact F. J. Wood & Associates for a no obligation analysis TODAY.

Fred Wood

F.J. Wood & Associates, LLC

Life Insurance

Toll Free: (877) 215-3812

Cell Phone (24-7): (609) 334-3152



We are licensed in the following States:

New Jersey Producers License Number 9720732 | Florida Insurance License Number W140058 | Delaware Producers License Number 1338718 | Georgia Producers License Number 2977859 | Virginia Producers License Number 942617