You may want to consider borrowing from the cash value of your life insurance policy, rather than withdrawing money from the policy. However, please discuss this first with a knowledgeable insurance agent, as “withdrawing” money from the cash value will create a taxable event (IRS1040, line 4b) and the untaxable portion of the withdrawal will also be recorded on IRS1040, line 4a (similar to an annuity) and may be considered as untaxable income for financial aid purposes by some colleges.

Borrowing from the cash value of an insurance policy usually works best with whole life cash value policies. The interest rates and repayment terms are usually favorable, and interest may be offset by the dividends earned, depending on the policy. However, you should be aware of the pitfalls of borrowing too much from the cash value (especially with universal or variable universal life policies) as it could result in negative equity and cause the policy to terminate.