There are 3 main reasons why I think it makes a lot of sense to save up for children’s tertiary education using insurance:
1. Lower risk – because children’s education is not meant to be gambled
Every form of investment comes with risk, and common investment products such as Shares, Unit Trusts and ETFs are not capital-guaranteed. Most parents I know do not want (unpleasant) surprises when it comes to their children’s education, and this can only be achieved with an investment / savings instrument that is capital-guaranteed. Insurance products meant for savings purpose can be capital-guaranteed upon maturity.
While the returns from insurance savings plans do not have the upside potential of investment instruments, they are higher than what a typical bank savings account can yield due to the longer time horizon of the plan.
In my opinion, both professionally and personally, an insurance plan is a sensible product to use to save up for children’s education as it is lower risk than products that are not capital-guaranteed, but yet provide potentially higher yield than bank deposit accounts.
2. The savings doesn’t stop even when you have to stop
Even with the least risky way of saving for your child’s education in a bank savings account, the risk that cannot be eliminated is the risk of loss of income to the parent. In the course of my work, I gathered that one of the main financial planning concerns parents have is ‘If anything bad were to happen to me one day, will my child still be able to go through tertiary education as intended? ’ The ‘anything bad’ refers to untimely demise, disability and being struck with a serious and critical illness.
With the strategy of providing for a child’s education using bank savings or regular investments, the fund stops growing as intended should the parent be no longer able to inject new funds.
On the other hand, using insurance to save will ensure the child’s education fund is not compromised as there is insurance protection. This is a unique value of using insurance to fund for a child’s education that no other savings and investment instruments are able to do.
Let’s imagine the 2 scenarios:
Using Bank Savings
(Aviva MyEduPlan with EasyPayer Premium Waiver & Payer Critical Illness Premium Waiver riders used for illustration)
As in the situations illustrated above, difference in choice of savings instrument can result in very different outcomes, especially when things do not turn out as intended along the way. Savings for children’s tertiary education can be for 18 to 20 years period and insurance plans can provide the peace of mind that continuous savings can be assured throughout such a long period of time.
3. Especially relevant for sole breadwinner and single parents
Because of the protection element that an insurance plan can offer, i.e. future premiums are waived if parent passes away, gets disabled or is diagnosed with a Critical Illness, it is an especially suitable instrument for families with a sole breadwinner or single parent. This addresses the core concern every parent in such a situation has – who will take care of my child should anything happen to me.
While it is imperative for a parent in such a situation to also have a comprehensive financial plan (consisting of insurance to cover events such as Death, Disability and Critical Illnesses) done up with the help of a Financial Planner, saving up for his / her child’s education is just as important.
Thus, savings for children’s education is such situations by using insurance plans helps to kill 2 birds with one stone – saving for the child and protecting the parent.