Dear Dr. Don,
I’m considering buying a whole life insurance policy for my 15-year-old son. There’s a variety of opinions out there about these policies. He already has a 529 plan currently worth about $16,000. It seems to lose money, so I don’t consider it reliable. He also has a small trust that his grandpa set up for his education. I want a conservative, consistent way for us to put money aside for his use when he is older. I know it won’t be worth anything significant for about 20 years, and that’s OK. Even with fees, it should pay more interest than a certificate of deposit.

— Ava Accrete

Dear Ava,
If you don’t like how the Section 529 college savings plan is performing, you can change how it’s invested and even where it’s held. This close to your son’s college years, you probably should reduce the risk or volatility associated with the account.

So, you are looking at the whole life insurance policy as a tax-deferred savings vehicle that also provides insurance coverage? Whole life policies are more attractive to conservative investors in a low-yield world, like the one we know today. Bankrate reports the highest rate available nationally on a five-year CD has an annual percentage yield of just more than 2 percent. Still, there’s reason to be cautious in choosing a whole life policy for a child.

Are you planning to pay the premiums forever, or would you have him take them over? Alternately, you could purchase a policy with no payments due after a number of years.

Cash values build slowly in a whole life policy. Your 20-year horizon for getting a reasonable average return is about right. Did you know Series EE savings bonds earn about 3.5 percent when held for 20 years? Those earnings can be tax-deferred.

A whole life insurance policy wouldn’t be my choice to build wealth for him over time. I’d keep focused on getting him through college with a minimum amount of debt. You might help him fund tax-advantaged retirement accounts after he graduates and begins to try to earn a living.

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