Personal Finance Essentials
Life Insurance and Protecting Your College Plan
Ensure Your Child’s Education is Funded
No Matter What Happens to You
Using Term Insurance as a College Safety Net
If you are actively saving for your child’s college education, one of the most affordable protections you can put in place is a term life insurance policy. If you die before completing your savings plan, the insurance benefit steps in to fill the gap – ensuring your child can still attend college even if you never had the chance to finish saving for it. A 20-year term policy purchased when a child is young will typically remain in force until after the child has graduated, at which point the insurance need has passed and the policy can be allowed to expire.
The Beneficiary Mistake That Could Derail Your Plan
One of the most common estate planning mistakes parents make is naming their minor children as direct beneficiaries on life insurance policies or retirement accounts. The intent is logical – you bought the policy to protect your family and fund your children’s future. But if both parents die while the children are still minors, the money does not flow smoothly to a college account.
In most states, children cannot directly inherit more than a small amount. Anything above that threshold is turned over to a court-appointed guardian, and most distributions require court approval. The process can take a year and cost thousands of dollars in legal fees. Once the child turns 18, the money goes directly to them – to spend however they choose. A sports car is as legally valid a choice as tuition.
The solution is to establish a children’s trust in your will and name that trust as the secondary beneficiary on your insurance policies. This lets you specify the age at which children may access the funds, and direct what they may be used for – so that money intended for college actually reaches that purpose.
