Can life insurance help fund college education costs?

Life insurance can play two distinct roles in college funding: protection and accumulation. On the protection side, including college costs in your coverage calculation ensures that if you die before your children graduate, there are funds to pay tuition without depleting retirement savings or forcing them to take on excessive student debt.

On the accumulation side, permanent life insurance—particularly whole life and indexed universal life—builds cash value that can be accessed tax-advantaged for any purpose, including college tuition. Unlike 529 plans, life insurance cash value is not counted as a parental asset on the FAFSA and does not reduce need-based financial aid eligibility. Policy loans do not require repayment and are generally tax-free.

However, life insurance is not primarily an investment vehicle and should not replace dedicated education savings accounts if you can fund both. The IUL's 0% floor protects cash value in down years, while a cap (typically 8–12%) limits upside. Policy fees must be considered. IUL is most effective when used as a long-term supplement to a diversified college savings strategy.