When you buy a permanent policy (such as children’s whole life or indexed universal life designs) on a child, every premium dollar does two things:
Provides lifelong life insurance coverage, often with guaranteed insurability options for the future.
Builds a pool of cash value that grows tax‑deferred and can be accessed later.
Unlike a 529, those dollars are not locked into education use only. Cash value can typically be accessed through tax-free policy loans and used for:
College or trade school expenses.
A first‑home down payment.
Starting a business or bridging a career transition.
If life takes a different path and college is fully funded from another source, the policy is still useful - your child keeps the insurance and the beneficial tax treatment - continuing to grow cash value as a long‑term financial asset.
The phrase “living benefits” simply means the policy can benefit your child while they’re alive, not just as a death claim.
With well‑structured children’s policies, those benefits can include:
Access to accumulated cash value for future goals, through tax-free policy loans that do not require credit checks or underwriting.
The option later in life to keep the policy, reduce coverage, or in some cases convert it to other financial arrangements such as income‑producing options.
In other words, you’re not just “buying insurance”; you’re building a long‑term, contract‑based asset that your child can manage as an adult.
One of the strongest arguments for children’s life insurance has nothing to do with college at all: it’s about insurability and price.
Starting early can:
Lock in very low premiums for life, because coverage is priced at young, typically very healthy ages and can remain level forever.
Guarantee future insurability, through riders that allow your child to buy more coverage later without new medical exams - even if their health changes for the worse.
Avoid the risk that a later diagnosis or high‑risk activity makes insurance unaffordable or unavailable.
For many parents, that peace of mind is as important as the cash value itself.
This isn’t an “either/or” decision. For a lot of middle‑ to high‑earning families, the most effective path is a both/and approach.
Broadly:
529 plans excel at pure, tax‑advantaged college funding, with low costs and strong market‑linked growth potential, but are restrictive and can create taxes/penalties if not used for qualified education expenses.
Children’s cash‑value life insurance offers more flexibility on how funds are used, adds a death benefit, tax-free access and importantly does not count against federal financial aid in the same way as other savings.
Used together, a family might:
Aim to fund “core” college needs via 529s.
Use a children’s policy as a flexible, long‑term bucket that can help with education or later milestones, while also securing permanent coverage for life.