Ensuring a Future
So what am I getting at here? It's hard enough to shoulder these tuitions if you've got two parents working hard at it, but what if there's only one? Maybe one of the parents met an early demise - probably from overwork - and left only an under-funded 401K and a half interest in a home that's barely above water. Sure, maybe the single parent can qualify for oodles of financial aid, or maybe the kid who plays the oboe and captained the water polo team can catch a free ride somewhere, but those are long shots. Maybe, too, the child can borrow the whole tab - and then spend the next 20 years paying it off. The better odds, though, are on saving and investing whatever the parents can squeeze out, but also laying in as much life insurance as the family can afford.
Great, you say, but if they can't pay the tuition, how can they ever pay insurance premiums? That's a fair question and maybe a deal-breaker, but the cost can actually be quite modest. Young parents in good health, at least when they apply, can get very low term insurance rates for quite a lot of coverage, and if they're willing to have it pay off only if both parents are gone, they can cut the cost even further. That's called a "second-to-die" policy. It might also be possible to sell the grandparents on paying the premiums, even if their fixed incomes prevent them from making much of a contribution to the overall tuition bills. While we're at it, also getting the grandparents to toss their loose change into Section 529 plans for the kids can really add up if they do it from day one out of the delivery room. We've been over that territory before.
Probably the best beneficiary to name on these education policies is a trust that has the right, but not the obligation, to contribute toward tuition bills. Resources in that form don't generally have to be disclosed on financial aid apps, so they won't reduce the amount of aid available to the family. But having $250,000 or more of policy proceeds standing by to help out in the worst case can make the difference between the kids going to college or not - or at least getting a decent start in life instead of finally paying off huge tuition loans with their first Social Security checks.
Needless to say, a trust holding insurance proceeds can also make the difference between the surviving spouse losing the house or having enough income to cover the mortgage payments.
The options for finding the right insurance are infinite. There's the Internet, surely, but there are also many capable agents in this area who can put together the best terms and rates for every budget and family situation. When dealing with insurance of all kinds, I always tell people to determine how much they're willing to spend - and then to find out what kind of coverage is available for that amount. No one wants to focus long on worst case scenarios, but if they don't plan for them at some point, the consequences could be much more than emotional.
Posted 07/24/2014 - Estate Planning