Use IUL for College Costs

First, what’s an IUL?

It’s permanent life insurance with a built-in savings bucket (“cash value”). That bucket can grow tax-deferred and you can tap it later with policy loans or withdrawals to help pay big bills—like tuition.

Why parents like IULs for college money?

Two smiling college students with backpacks on a sunny campus, representing IUL college funding options from Fostered Life Insurance—Indexed Universal Life for tuition and education costs.

1) It can grow without current taxes

Cash value in an IUL builds on a tax-deferred basis, so you’re not paying taxes every year as it grows. That helps the pot accumulate for when college bills arrive.

2) You can often access cash value tax-advantaged

Parents commonly tap cash value with policy loans. Loans from a non-MEC policy are generally not taxable; withdrawals are often tax-free up to what you’ve paid in (your “basis”). That’s a big plus when you’re writing tuition checks. (Always coordinate with your tax pro.)

3) FAFSA win: your policy’s cash value is not reported as a parent asset

Under the federal aid rules, the value of life insurance isn’t listed as a FAFSA asset—so simply owning cash value typically doesn’t raise your Student Aid Index.

4) Smart timing options

Because your IUL’s cash value isn’t a FAFSA asset, many families time policy loans after filing to help cover the bill without showing more assets on the form. (Planning tip endorsed by college-aid experts.)

Parent and teen reviewing college tuition paperwork at the kitchen table, planning education savings with an IUL from Fostered Life Insurance—flexible, tax-advantaged college funding solution.

5) Protection from market drops while you’re saving

IUL crediting uses floors and caps. A common floor is 0%, which means when the index falls, your account isn’t credited a negative rate—helpful when you’re earmarking dollars for a near-term goal like college.

6) Flexible payments as life changes

Babies, braces, activities…budgets move. IULs allow flexible premiums (within policy rules), so you can dial funding up or down and still keep the plan on track for college years.

7) Family protection stays in place

While you use cash value for college, the death benefit remains your backstop for the family—and life insurance payouts to beneficiaries are generally income-tax-free under federal rules.

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How families actually use an IUL?

• Before high school:

Fund the policy and let cash value compound tax-deferred.

• FAFSA season:

File the FAFSA (cash value isn’t listed).

• Payment time:

Request a policy loan to help with tuition, fees, housing, tech, travel—whatever school life needs. Loans are typically not taxable if the policy stays in force.

• Graduate & beyond:

You can repay the loan on your own schedule—or keep it and let the insurer settle any balance from the policy later. (Coordinate with your agent on the best way for you.)

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Quick FAQ (kept positive & practical)

Will using cash value mess up aid?

Owning cash value doesn’t show up as a FAFSA asset. Many families simply time loans after filing.

Is the money limited to “qualified” school expenses?

No—policy loans are flexible: tuition, room/board, travel, instruments, laptops—your call. (That flexibility is part of the appeal.)

Is the growth taxed every year?

No. Cash value growth is tax-deferred, which helps it build for the big bills.

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Ready to see numbers that fit your family?

Get a free, no-obligation IUL quoteWe’re an independent brokerage. We compare top A-rated life insurers—so you don’t have to. One application. Side-by-side options. We’ll size an IUL to your target college number and show you how cash value access can plug tuition gaps—simply.

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