Variable Life Insurance

This is a type of insurance that combines life insurance with a tax-deferred investment account. It provides tax-free access to the cash value of the policy. The variable life insurance policy is promoted by some insurance companies as a college savings vehicle because the value of the policy is sheltered from financial aid need analysis formulae. This type of insurance has advantages because the money is sheltered from the financial aid need analysis process and has no impact on financial aid. There are no limits on the amounts you can invest. The parent retains control over the money, and one can withdraw or borrow contributions tax-free without penalty.

However, there are some aspects of the variable life insurance that you must think over first. The products under this type of insurance tend to be expensive, with high commissions and expenses. The premiums on a variable life insurance policy will eat into the gains you could make from the money you are paying, and unlike contributions to retirement accounts and some college savings plans, the premiums are not deductible. Withdrawals will reduce the death benefit and if you withdraw more money than the premiums you paid into the policy, you will pay income taxes on the difference. Withdrawals may cause the insurer to move a portion of the remaining balance into a fixed-return account to minimize the company's risk.