Q: We have three children; one graduated from college in 2017, one will begin her junior year of college this fall, and our third will be a high school senior.

We have diligently saved for our children’s college educations, using the Minnesota College Savings Plan as our primary vehicle. However, had my husband’s parents not (unfortunately) died in 2013 and 2014, leaving us some inheritance, we would have had some trouble making up the difference to date.

Our daughter’s fall tuition bill has just arrived, and we will have to drain her college savings account — in addition to pulling from that inheritance — to meet the bill. … Is it better for us to make the payments by continuing to draw from the inherited dollars, or would it be better for us to begin drawing on the cash value of some life insurance policies we took out nearly 30 years ago?

Jane

 

A: This is one of those personal-finance issues where the answer lies in the details that you will need to research. Before making a decision, you should examine your permanent life insurance policy, said Bill Wixon, certified financial planner and owner of Wixon Advisors, Inc.

He recommends pursuing these questions: Do you still need life insurance? How is your health? Does the cash value exceed the total premiums paid after 30 years? What are mortality costs as well as the investment return on the policies? The net return on permanent life is usually less than impressive, but some older policies offer good rates of return. Will you borrow against the policy or start cashing it in?

You will want to compare those answers to how you are investing the inheritance. Depending on your asset allocation, what kind of long-term returns might you expect? Thinking through the financial details and trade-offs will help you come to a financially sound decision.

Here is an additional topic to consider: How do you think your husband’s late parents might like the money spent? Would it make them happy if it went to their grandchildren’s education? Or would they prefer that it be used as a safety net? There is no right answer, of course. But it might be something to think about.

I do want to take advantage of your question to caution new parents that it usually doesn’t pay to buy permanent life insurance to save for your children’s college education. The policies are too expensive and complicated. The 529 college savings plan is a much better alternative.

 

Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.