Hmm....see next comment. Sounds suspicious initially.
Huh?
Either the policy pays dividends, or it doesn't. If it pays dividends, what was the past 1 or 2 years dividend rate? It's a simple question that can't really get any clearer with this policy. If the agent is giving you this much of a run around on this simple of a truly black-and-white question, I would be worried about other, more complex questions and the agent's ability to give you an honest/competent answer!
Oh, ok. Fine. Someone wants to be ultra technical, eh?
But wait a minute, I just thought he said 5 seconds ago that the policy didn't pay dividends because "that's not how this policy works"
Ok, so at least you have some sort of an answer. But I would wonder about this set-up. The agent claims that premiums would never need to be paid again...but apparently, the dividends from the cash value only pay about 1/2 of the premiums, and you have to draw down the cash value to pay 1/2 of the premiums. And that's when your children are in their teens? When they're much older, the premiums charged inside the policy will be much higher.
So even if the dividend rate doubles to 5.52%, it would just barely pay the premiums when they're teens. At age 40, 50, 60, those premiums will be much higher.....and that cash value will go down much more quickly as it pays a larger and larger share of those premiums, since the dividends may not cover a substantial portion of the cost.
Which means the statement of "premiums will never have to be paid" seem possibly quite a stretch. Ask him if he will put it in writing. If he won't/can't, then you have your real answer.
If he tries to hum and haw about "well, I can't say anything in writing to guarantee anything", then ask him "well, I thought you said that this policy doesn't work with dividends/interest - that it works in some other way.....well, what way is that?"
This confuses me. Are you saying that there are two "cash value" numbers, one cash value you would get if you closed the policy and withdrew the cash, and another 'cash value' that you are paid dividends upon? What's the difference in number? Is there a surrender charge applied that would reduce the cash value if you closed the policy and withdrew the cash?
Wow - so this same agent originally sold your father the policy, collected a nice commission, and likely never had to do squat for your father since (in terms of time commitment)...and he can't even do a few simple clicks on his computer to either look up or request from the home office what his total premiums paid is?
If I were you I'd call the home office of the company and complain. Tell them this agent isn't giving you straight answers, AND he won't even do so much as look up a simple question of
A) the current dividend rate
B) tell you what your total premiums paid to-date are
Those are pretty simple questions that an agent should be able to answer. Granted, he may not have it at his fingertips in 5 seconds...but at the very least, he should say "I don't have access immediately to that info. but will look it up and get back to you with that information in a few days".
In my opinion, it's a somewhat 'simple' analysis, but first you need to estimate what your total premiums paid are (does your father by chance have a copy of the annual statements they sent out on the policy? that would show you what the policy earned in dividends each year, what the premiums charged for the insurance policy was, and what total premiums were paid).
Then, figure out what your taxes would be owed (if any), subtracted from the cash-out value of the policy.
You then have your "number" - the after-tax cash in hand of what you can do with it.
Compare that after-tax cash value with your options: invested in a low-cost index fund, and/or pay for tuition.
The third alternate would be to guess how long that policy would last without further premiums paid. This is the big unknown, because you don't know what the insurance premiums will be that the policy is charged, and how long that cash value will last if it's paying half (or more!) of the annual premiums. How long would the cash value last right now before being depleted, with current insurance rates of your children in their teens, and the current dividend rate?
My guess is that the insurance policy won't last their entire lifetime, given the previous paragraph.
But say the dividends and consumed cash value burn rate will last until they're, say, 70. Look at what the cash value (after taxes) will be worth for them at age 70 if you invested it today in a low-cost mutual fund and let it grow for, say, 6% for 50 years.
My guess is that the cash value invested in the index fund will be worth more than the death benefit when they are in their 70s.
While nothing's guaranteed, I would 'trust' a 5%-6% market return over an insurance salesman who isn't giving you any service and is talking out of their nearest bodily orifice just to give you any answer, rather than digging to give you the answers you need.
One last item on the cash-value item: check your state's 529 plans. Some states offer a state income tax deduction for 529 contributions. In MO, with a state income tax rate of 6%, you can contribute up to $8k to a 529 plan and get a 6% guaranteed return off of that money through an income tax deduction. So if your state offers that, it's a quick, easy return if you choose the route of putting the after-tax cash value into a 529 plan (even if you do immediately withdraw it in 6-12 months to pay tuition!). But check your state's regulations.