Educational Fund

What Does Educational Fund Mean?

In the context of insurance, an educational fund refers to the use of a life insurance policy to finance the education of the insured’s child.

Insuranceopedia Explains Educational Fund

One benefit of life insurance policies is that they can provide funds for the education of the insured’s child. Depending on the type of policy, the insured may also withdraw or borrow against the policy’s cash value to cover education expenses. How quickly that cash value becomes available depends on the policy structure, so it helps to look at which type of life insurance policy generates immediate cash value before choosing one for this purpose.

For example, with a term life insurance policy, if the insured passes away, the tax-free death benefit can be used to pay for the child’s college expenses. In contrast, a permanent life insurance policy—often recommended by advisers for this purpose—allows the insured to borrow against the policy’s cash value without incurring tax penalties. This additional funding can help cover the child’s education costs. Parents who plan to use a policy as an educational fund often compare quotes from several of the best life insurance companies before locking in a policy, since premiums and cash value growth vary widely between insurers.