Things You Didn’t Know About Education Insurance Policies

Written by Wellington Ayugi

Your children’s education is more than a short-term expense. It is a long-term commitment that can stretch over a long period of time. You can expect to see them through 12 years of elementary and high school, and 3 more years of university. Financing such a long-term commitment can be a daunting task.

As university tuition fees continue to rise, many parents are taking out expensive loans that will lead them further into debt. To ensure this doesn’t happen to you in the future it would be smart to consider an Education Insurance Policy. This type of insurance can be used to save money for your children’s education, whether you are present or not.

Having said that, despite the number of educational plans being offered by insurance providers, not many people are fully aware of what an educational insurance policy is all about. To help in that regard the article will look into what is an education insurance policy, the type of coverage you need and things to consider when taking out such a policy.

What is an educational insurance policy?

An education insurance policy is a type of life insurance product that is designed as a savings tool which pays a lump sum to cover your children when they reach 18 years or above, and about to join the university. The money paid out is meant to cover their university education. Under this policy, the parent/legal guardian is the policyholder while the child is the life assured.

In addition, there are some educational insurance plans that are insurance cum investment products. Referred to as unit linked child plans, part of the premiums paid goes towards life cover and other policy fees (administration, fund management, premium allocation etc). The remaining amount is invested in funds as per the policy holder’s discretion. The money invested will generate market linked returns. Should the policyholder survive the term of the policy, the value of the fund is paid to the policyholder.

Here are some key features of an education policy that makes it an attractive option when it comes to financing your children’s university education. They include:

  • Once the child is born you can begin saving immediately. This way you can save for a long time and expect a considerable lump sum once he reaches 18 years of age.
  • You can pay premiums on a monthly, quarterly, semi-annual and annual basis. In addition, you can increase or reduce the amount you pay to improve your savings with exceptional premiums.
  • It is a savings plan that has a life cover with your child as the only beneficiary.
  • You have the option of investing in the capital markets
  • There is a competitive annual rate of return on your investment.
  • You also have the option of adding permanent and total disability coverage.

Now that you have a better understanding of the basics of the policy and the main features, you can start figuring out what amount of coverage is perfect for your needs.

How much coverage do you need

The first step to determining the amount of coverage you need for your education policy is to establish a long-term goal. What are your aims for your child’s education? Depending on your situation there are some factors you may have to consider when determining your level of coverage.

To begin with, where does your child plan to study, locally or abroad? If you are keen on your children studying abroad, it would be useful if you can identify which country you would prefer. Apart from the tuition fees, you will also have to factor in living costs which can be quite considerable, depending on the country in question.

Another thing for you to consider is the university of choice. Keep in mind that top-notch institutions are more expensive compared to mid-level universities or technical colleges. The same can be said of the course your child intends to study. Some courses are more expensive than others. For instance, an undergraduate degree in medicine will likely cost more than one in finance or creative arts.

Another factor would be how long the course would take to be completed. A longer course will mean digging deeper into your pockets to cover incidental expenses. Working through this factors will help you to map out the expected costs. You can calculate how much you actually need by using this simple guide:

Take the Current Annual Course fees + The Expected Living Costs X  The number of years to study = How much it would cost you today

Since the education expenses will be incurred in the future, you also need to factor in inflation. Once you have taken inflation into account, you will most likely end up with an amount that is beyond what you currently earn. With this information, you are now in a better position to start looking at different education plans in the market and choosing the one that aligns with your goals.

What plan should you purchase

The education policy you decide to buy will depend on your risk tolerance and your goals. Before you purchase the policy instruct your agent to carry out a fact-finding assessment of the recommended policy to ensure it covers your needs and is within your financial capacity.

It would be advisable for you to choose a policy that gives you access to your funds whenever you need them. An example would be a policy that matures when your child starts university or one that allows you to receive part of the insurance benefits before the maturity date. The following five tips can act as a guide when you buy an education policy.

  • Ensure the premiums are affordable: Saving through an education insurance policy is a long-term process and therefore, you need to be realistic on what you can afford to pay based on your current income and lifestyle. If you start with a higher amount than you can afford, you could end up terminating the policy and losing your money altogether when faced with financial difficulties.
  • Make sure you choose a payor benefit rider: Make sure you choose a policy that waives premium payment in the event your parent/legal guardian is unable to pay for the policy, due to the diagnosis of a critical illness, permanent disability or arising from his untimely death. By having this option, your child’s education expenses will be taken care of should anything happen to you.
  • Keep an eye on the funds: After you purchase a policy, you need to monitor the funds to ensure you reach your goals. Actual returns declared by the insurance provider may be different from initial projections (especially for investment-linked policies) due to changes in the money markets. You may also discover the actual cost of university education may differ if the course selected by your child is different from the one in the initial plan. In the case of an overseas education, currency exchange rates may fluctuate and change your fund balances slightly. However, if there is a shortfall in the funds required, some education plans have a provision for a study loan.
  • Do not include unnecessary coverage: Many educational policies allow you to add extra insurance options like surgical medical insurance and critical illness cover. Be wary of adding too much insurance coverage as the cost of the premiums will definitely go up.
  • Find out if there are tax incentives: One of the many benefits of using life insurance as a savings tool for an education policy is the tax benefits. Insurance proceeds are tax-free and you can enjoy an annual tax relief for the payment of education insurance premiums.

In today’s uncertain economic climate, it is crucial you begin planning early enough for your child’s future. The unfortunate reality is government backed student loan schemes, are barely adequate when it comes to covering tuition fees and living expenses. Bank student loans, on the other hand, require a lot of paperwork and the interest rates can be expensive. Here are a few insurance products that are designed to meet your education financing needs.

MADISON UNIPLAN

Uniplan is an educational plan offered by Madison Insurance. The plan allows parents and legal guardians to predetermine the cost of university education for their children with a degree of certainty. The policy can be used as a saving tool while providing protection against disability or death. You can choose a policy term range of 5-15 years and start saving immediately.

BRITAM SUPER EDUCATION PLUS POLICY

Britam Super Education Policy is an educational policy offered by Britam Insurance. It is a combination of savings and insurance protection that allows you to prepare for the cost of education. The policy has a term range of 10-25 years at a minimum monthly period of Ksh. 3,000. Cash bonuses are payable for the last 6 consecutive years before the plans maturity date.

JUBILEE CAREER LIFE GOLD PLAN

Jubilee Insurance offers Career Life Gold Plan which is designed to save funds on a regular basis to cover your child’s education expenses at various stages of his education. In the event of your premature death or disability, your child’s fee requirements will still be met. The term of the policy is 15 years. While premiums are fixed, there is room for adjustments should your financial circumstances change.

OLD MUTUAL RAFIKI HALISI PLAN

Rafiki Halisi plan is a  product from Old Mutual that is designed to be an education savings and investment plan. You can decide to invest anything from Ksh. 1,000 to Ksh. 6,500 per month, and for how long. Your money will be invested in a fixed income fund and your premiums will be tax exempt to the maximum permissible by law. It also has a bonus feature which pays your premiums until the end of the policy or the next 10 years, if you die or become disabled.

An education policy in Kenya will not only guarantee your child quality education, but it will also help you meet any unforeseen financial obligations that may arise. Don’t wait until your child is on the threshold of adulthood before you begin saving, contact your insurance broker/agent today and get more details on the different education insurance plans being offered.

About the author

Wellington Ayugi

Wellington Ayugi handles Business Development at Covered and has a passion for personal finance, microfinance, and developments in financial technology