Life insurance to help my daughter?

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Q. I save $100 per week into an online account for my daughter who is 4. I opened two small 529s to which I save $50 per month. Lastly, I opened a $125,000 whole life policy which I committed to pay off over 10 years. She can use that for college expenses. I was thinking when that policy is done, I would open a second one with a higher-paying dividend to put her on the right track down the road after college. What do you think?
— Saver

A. We’re glad to see you’re planning ahead.

You don’t necessarily need two separate 529 plans for the same child.

It makes things for complicated, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

Instead, he recommends you choose a good one with low fees, and then just stick with it.

Saving in a 529 plan is probably your best bet for college goals, he said, rather than saving in your online account. If that online account is in your child’s name, it will belong to the child when she’s no longer a minor and you will lose control.

“Assuming an 8 percent return and no money in the account now, you will have around $123,000 for your child at age 18,” he said. “There is no way you will get financial aid and more important, if Junior says they don’t want to go to college, and they are buying a Porsche and driving to California, you can’t stop them. It’s their money.”

On your life insurance idea, Lynch said whole life is a very good product, but there are no perfect products.

Planning to take out the cash value could have unintended consequences.

“I have whole life and like it, however, if you pull out too much cash you will destroy the policy and have a taxable event,” he said. “It is also more of a long-term program so I am not sure if 10 years is enough to even break even.”

You’ll need to look closely at that policy, and any others you consider, to see if they truly help you reach your goals.

It’s generous for you to want to help your child, but consider whether you’d be doing more harm than good.

“My goal for my kids is not to give them a boatload of money at age 18 as I feel it can do more to hurt them then to help them,” Lynch said. “People who earn money and save it have a lot more respect for it. I would much rather teach them that.”

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