Educational Fund

Published: | Updated: March 10, 2017

Definition - What does Educational Fund mean?

An educational fund, in the context of insurance, refers to the use of a life insurance policy to pay for the education of the insured's child.

Insuranceopedia explains Educational Fund

One benefit of life insurance policies is that it can provide funds for the education of the insured’s child. Depending on the type of policy, an insured can also withdraw or borrow against the insurance policy’s cash value to use for education expenses.

For instance, with a term life insurance policy, if the insured passes, the tax-free death benefit can go toward paying the college expenses of the insured's child. On the other hand, with a permanent life insurance policy, which many advisers suggest families purchase for this purpose, the insured is allowed to borrow against the policy’s cash value without any tax penalties. This extra money can help pay for their child's education expenses.

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