Dave Says: Life Insurance Policy or 529 for College Savings

Dear Dave,

An insurance salesman told me it's better to use a life insurance policy for college savings rather than a 529 plan because the child can use it for anything instead of just college. Is that true?

Rusty

Dear Rusty,

Of course that's what he told you. He's an insurance salesman!

He was right on one point. If the kid doesn't go to college, the savings inside an insurance policy can be used for anything. But here's the catch: There won't be much waiting for you, because you saved it inside a life insurance policy. The returns stink! Savings inside a life insurance policy won't get you anywhere near the cash you'd have by investing in a 529 plan.

If you're going to save for your kids' college fund, there needs to be lots of talk around the house about actually going to college. It's not really brainwashing them so much as it's letting them know the importance of a good education. And they need to know, on no uncertain terms, that the money you're saving for them is for one thing: college.

What you experienced, Rusty, was an insurance salesman trying to sell insurance. Stay away from it when it comes to saving up for college!

—Dave