Advanced Underwriting Consultants

Ask the Experts – July 21, 2014

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: I have a client whose son will be applying for financial aid as a college student soon. Does life insurance owned by my clients (the parents) count against him when determining his eligibility for financial aid?

Answer: No. When applying for financial aid, they will need to fill out a FAFSA. On the FAFSA, the parents and the student are required to list their investments, which will be taken into account in determining the student’s eligibility for financial aid. The instructions on the FAFSA provide the following:

Investments do not include the home you live in, the value of life insurance, retirement plans (401(k) plans, pension funds, annuities, non-educational IRAs, Keogh plans, etc.) or cash, savings and checking accounts already reported in questions 41 and 90.

Emphasis added. Therefore, purchasing life insurance, like contributing to a retirement plan, may be an effective way to minimize your client’s investments for student loan eligibility purposes.

Have a question for the professionals at AUC? Feel welcome to submit it by email. We may post your question and the answer as the question of the day.