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How Much Should Parents Contribute to a Child’s Savings for College?

Hey, parents and proud grandparents! College planning—it's a big deal, right?

We all want the best for our children and grandchildren, and part of that includes ensuring they get a good education. But the big question is, how do we make that happen without breaking the bank? Well, that's where Indexed Universal Life Insurance (IUL) comes into play.


Understanding IUL: What's the Deal?

First things first, let's break down what Indexed Universal Life Insurance (IUL) is all about. IUL is like a superhero insurance policy that can do more than just protect your family—it can help you save for your child's college education too.

Imagine this: it's an insurance policy, but with a twist. Alongside providing financial security for your loved ones if anything happens to you, IUL also grows a cash value over time. And here's the kicker—it's got tax benefits! That means it can be a nifty tool for building up a college fund.


Setting Clear Goals: Where Are We Heading?

Now, let's get down to the nitty-gritty. Before you dive headfirst into college planning, you need to set some clear goals. Think of it as plotting your course on a map—you need to know where you're going.

Ask yourself, "What kind of college education are we aiming for?" Is it a fancy private university, a state college, or a community college? Each one comes with its own price tag, so knowing what you want helps you figure out how much you'll need to save.


Calculating College Costs: Counting the Pennies

Alright, now that we've set our goals, it's time to get real about the numbers. College isn't just about tuition fees; it's like a financial puzzle with a bunch of pieces. You've got your tuition, room and board, books, and let's not forget about the occasional late-night pizza runs.

The thing about college costs is that they love to play hide and seek with inflation. That means the price tag you see today might look completely different in a few years. So, it's smart to account for inflation when you're doing your calculations.

Start by finding out how much colleges cost right now. That's your starting point. Then, add in an annual inflation rate—let's say around 3%. This will give you a ballpark figure of what you might be dealing with when it's time to pay those college bills.


The Role of Parents and Grandparents: Team Players

Now, let's talk about your role as a parent or grandparent. You're like the coaches in this college savings game. Your support is not just about money—it's about being there, cheering them on, and making sure they have the resources they need.

Parents often take the lead in college planning, but grandparents can be valuable team players too. Maybe you want to surprise your grandchild with an extra boost for their education. That's where you can step in and make a difference.

Whether you're a parent or grandparent, remember, open communication is key. Talk about your financial capabilities, how you want to contribute, and what you expect from the child or grandchild in terms of their involvement in the process.


Determining the Right Contribution Amount: Finding the Sweet Spot

Now, the million-dollar question (or should we say the college-tuition-sized question): How much should you contribute to your child's IUL for college? Well, it's not one-size-fits-all.

The right amount depends on your unique situation. Check out the table to see what most fam

Consider factors like your current savings, your income, and how many years are left before your child or grandchild starts college. The earlier you start, the more you can spread out your contributions. It's like making regular deposits into your college fund piggy bank.

Remember, the power of time and compounding interest can be your best friends. Starting early allows your money to grow over the years, and that can make a huge difference when it's time to write those tuition checks.


Using IUL as a College Savings Vehicle: Building Your Fund

Now that we've got a grip on the basics, let's talk strategy. How can you use an Indexed Universal Life Insurance (IUL) policy as a college savings vehicle? Well, it's all about tailoring the policy to your specific needs.

The thing about IUL is that it's flexible. It's like your financial toolbox, and you get to decide which tools to use. One of the smart moves is to allocate a portion of your premium payments into the indexed accounts offered by the policy.

Remember, these indexed accounts are linked to stock market indices, like the S&P 500. That means when the market does well, your cash value can grow too. It's like planting seeds that can turn into a financial harvest.

Now, let's bring in some real-world numbers to help you see the picture more clearly. The amount you contribute to your child's IUL for college can vary based on your family income. Here's a table of what most family's were doing in 2022 to reference:

Family Income

Average Contribution

Less Than $50,000








Source: Sallie Mae and Ipsos


The Power of Caps and Floors: Protecting Your Investment

Now, we've been talking about IUL policies and how they can be your financial ally in college planning. But how do these policies protect your investments? It's all about the caps and floors.

Caps: Think of caps as a safety net. They limit how much your indexed accounts can grow in a given year, which can be a good thing when markets are super hot. While you might not ride the absolute peak of market gains, you're also protected from steep market drops.


Floors: On the flip side, there are floors. These act as a safety floor for your policy's cash value. Even if the market takes a nosedive, your cash value won't drop below the floor. It's like having a financial cushion to fall back on.

This combination of caps and floors in IUL policies makes them a pretty sturdy option for college planning. You get to benefit from market growth while having safeguards in place to prevent major losses.


Tax Advantages: A Sweet Deal

Alright, here's another ace up the IUL sleeve—tax advantages. These policies come with some nifty tax benefits that can boost your college savings:

- Tax-Deferred Growth: Your cash value grows tax-deferred, meaning you don't pay taxes on the growth as long as it stays within the policy.

- Tax-Free Withdrawals: When it's time to tap into your IUL for college expenses, you can do so tax-free. That's right, no taxes eating into your hard-earned savings.

But what if life takes a twist, and your child decides not to go to college? Don't worry; your IUL savings aren't stuck in college limbo. Here are three smart alternatives where that money can be put to excellent use, potentially rendering 529 plans obsolete:

  1. Start a Business: Your child might have an entrepreneurial spirit. Use the funds saved to help kickstart their own business venture. It's a valuable learning experience and can lead to financial independence.
  2. Travel and Experiences: Sometimes, life's best lessons come from exploring the world. Consider using the saved funds to finance a gap year or travel adventures. Cultural immersion and hands-on experiences can be priceless.
  3. Invest in Skills: Instead of college, your child might prefer to acquire specific skills or certifications. The saved money can be invested in vocational courses or training programs, making them job-ready sooner.

Remember, an IUL policy gives you the flexibility to adapt to changing circumstances and invest in your child's future, whatever path they choose.

Check out my blog post on 3 likely scenarios that children choose instead of college right out of high school : 529 Plans? Nah, We've Got Something Sassier: The IUL


Conclusion: Investing in Their Bright Future

In the world of parenthood and grandparenthood, there are few things as rewarding as watching a child or grandchild grow, learn, and dream. Part of nurturing those dreams is making sure they have the tools and opportunities they need to thrive. That's where college planning comes in, and an Indexed Universal Life Insurance (IUL) policy can be your trusty companion on this journey.

We've journeyed through understanding IUL, setting clear goals, calculating college costs, and exploring the role of parents and grandparents. We've also uncovered the power of IUL's caps and floors, its tax advantages, and how flexibility is its middle name. And remember, if your child's path diverges from the traditional college route, your savings can still light the way for their success.

Don't let the uncertainty of future college costs paralyze you. Instead, take the first step towards securing your child's or grandchild's educational future or other meaningful endeavors. It's a gift that keeps on giving, a legacy that goes beyond numbers, and a testament to your love and foresight.


Begin Today Investing in Their Dreams

So, what's the next move? It's simple—take action. Reach out to us at Kovach Consulting Group to discuss how an IUL policy can fit into your unique family and financial landscape. Start building that financial safety net, that education fund, that springboard for their future.

Invest not just in their college education but in their dreams, ambitions, and potential. Your support today can shape the leaders, innovators, and change-makers of tomorrow. Don't wait; let's start making those dreams a reality, one step at a time.

Thank you for joining us on this insightful journey into the world of college planning and IUL policies. Your child's future is bright—let's make it shine even brighter together.


How America Pays for College. Sallie Mae and Ipsos. August 2022.


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