Using MEC to shelter assets, pay for college

blossom
Tue, 20 Jul 2021 19:36:18 +0000

There are situations where leveraging life insurance might be a good vehicle for college- a minor who is orphaned; a kid with parents who are past retirement age and have a paid up whole policy, etc. Since we don’t know the specifics of your situation- age, other assets, other liabilities, how many kids you have and their ages, etc. none of us can give you advice on your particular situation.

BUT- yes, it is unusual. It might be “usual” among insurance agents, whose fees are very high and are tied to the answer being “buy insurance” but it is not typical among financial aid advisors where I live-- in fact, I’ve never heard of this. It is a clear conflict of interest for an advisor to be recommending the products where he or she stands to gain a substantial fee. There is a well respected insurance agent in my town whose advice to EVERYONE who reads some article online about buying insurance to pay for college is “Live below your means. Fund your 401K. Fund a 529 plan. If there’s anything leftover, put the money in a no-fee index fund. You’ll thank me in 30 years”.

My standard advice- do not do ANYTHING for financial aid which does not make sense given the rest of your portfolio. I have seen families forgo 25 and 30K in upside to get an extra $1200 in aid. I’ve seen families increase their tax burden substantially (down the road, but cash is cash) for the sake of an extra $1500 in aid. And I’ve seen families tie up assets for a really long time only to discover that financial aid policies/cut-off’s have changed, and then they are both cash-poor AND are getting no or minimal aid, just when they need it most.

Your kid is going to college- great. Your fridge will also die on the hottest day of the year. Your muffler will fall off a car which is a month out of warranty. All the reasons you need to engage in smart financial planning will still be relevant when your kid is in college. And you’ll either qualify for aid or not- but tying up your funds in a high fee/low payout financial product is the kind of decision which can bite you in the rear for years to come.

Agree with Belknap- put on your running shoes and get out.