| Primary Purpose |
College tuition & qualified education expenses |
Life insurance + tax-advantaged savings |
| Tax-Deferred Growth |
✅ Yes |
✅ Yes |
| Tax-Free Withdrawals |
✅ Yes, for qualified education expenses only |
✅ Yes, via policy loans (can be used for anything) |
| Contribution Limits |
State-defined, typically $17,000 annual gift tax limit |
Flexible, based on policy design and insurance guidelines |
| Market Exposure |
Direct — tied to investment choices (mutual funds) |
Indirect — tied to index performance, protected by a floor |
| Risk of Loss |
❌ Yes, subject to market volatility |
✅ No, market downturn protection with a 0% floor |
| Impact on Financial Aid (FAFSA) |
✅ Yes, counted as parental asset |
❌ No, generally not reported as an asset |
| Investment Choices |
Limited to plan-selected portfolios |
Index-linked options, not directly invested in the market |
| Usage Flexibility |
❌ Education only (penalties for non-qualified use) |
✅ Can be used for any purpose — college, retirement, etc. |
| Death Benefit |
❌ None |
✅ Yes — provides lifelong life insurance coverage |
| Loan Availability |
❌ No loans, only withdrawals |
✅ Yes — tax-free policy loans anytime after cash builds |
| Control Over Funds |
Limited — based on state plan rules |
Full — policyholder directs premium payments and loans |
| Guaranteed Minimum Growth |
❌ No guarantee |
✅ Typically 0% floor, no negative market years |