Wednesday was surreal.
I got up before dawn and schlepped up to Ontario, CA, to attend an educational conference of a new organization called the National College Advocacy Group. I’ve listened in on some excellent webinars that the NCAG has hosted and this was the first time that I had an opportunity to meet college consultants in the organization.
The day was surreal because I ended up sitting between two guys who sell life insurance to families who are anxious about paying for college.
I have warned people for years to stay away from college planners who use insurance as a financial aid strategy. Life insurance is expensive and families do not need to buy it.
I was asked to give a talk at the workshop and I had worried that what I was going to share about determining the affordability of different schools would be too elementary for this group of professionals. While there were some sharp independent college counselors in the audience, many of the guys who make a living off of insurance commissions didn’t seem to have a grasp of what I was talking about.
I guess you can sell insurance as a financial aid panacea without knowing anything about how the college admission process actually works!
Listening to insurance pitches
After hearing pitches for insurance, I thought my head was going to explode. When I caught the attention of the presenter, I argued that life insurance is expensive and unnecessary as a financial aid tool. Of course, you could also argue that hiding assets in life insurance is unethical.
As a practical matter, most families haven’t accumulated enough assets to even warrant trying to hide them. Mark Kantrowitz of Finaid.org has observed that only about 4% of families possess enough assets to reduce their financial aid package.
As I mentioned on my CBSMoneyWatch blog, whether or not you receive financial aid is driven primarily by your income.
The big reason why investments rarely negatively impact financial aid is because you can shield so much of them automatically. Colleges don’t count any retirement assets in financial aid calculations. In addition, all parents get to automatically shield college money thanks to a federal asset allowance. For example, if you are 55 when your first child starts college, you would be able to shield $60,200 in assets. And the rest of the money would only be assessed at 5.64%.
None of the insurance agents, by the way, addressed my arguments.
At the end of the day, I expressed my frustration to one of the insurance enthusiasts standing in the lobby. When I argued that life insurance is unnecessary as a college financial strategy, the fellow responded, “But without commissions, how would I get paid?”
Maybe he could start by looking for a different line of work.