College Education Planning: Indexed Universal Life Insurance versus 529 College Savings Plans (Journal Article)

This study compared the performance of indexed universal life (IUL) insurance policies with 529 college saving plans in college education planning by Monte-Carlo simulations and sensitivity analysis. The IUL policies showed lower return and risk than the all-stock 529 portfolios but higher return and risk than the typical age-based 529 portfolios. The expected family contribution (EFC) impact should be considered in the decision-making process. All key market variables were modeled as correlated stochastic processes in the simulation. Important actuarial assumptions and tax-related issues driving the performance of the IUL and 529 investments were thoroughly analyzed. The study reported how these factors affected the performance of two alternative funding solutions.

Author: Zhixin Wu, PhD, ASA, MAAA, graduated with a PhD in mathematics from the University of Rochester in 2007 and achieved ASA designation of the Society of Actuaries in 2012. She has been a member of the American Academy of Actuaries since 2015. She is currently an associate professor and the chair of the math department of DePauw University. Her research interests include actuarial science, financial mathematics, and stochastic partial differential equations.

Author: Lei Liang, PhD, CFA, CFP, CAIA, FRM, graduated with a PhD in mathematics in 2007 from the University of Rochester and then joined the Federal Home Loan Bank in Des Moines, Iowa working in the risk management and quantitative modeling area. He joined Aviva Investors North America (subsidiary of UK’s top insurer Aviva PLC) providing quantitative research in portfolio management, derivative modeling, hedging, and alternative investments. Dr. Liang has been working with 40|86 Advisors, Inc. since 2011 as a senior quantitative analyst. He is a member of the portfolio management group in charge of derivatives hedging for the FIAs and EIULs portfolio as well as quantitative investment and portfolio management.