Two things that are universally unavoidable are death and taxes. We should probably go ahead and add education to that list. Whether it is self-taught, public or private, education is essential for personal and professional growth. However, it is not always affordable for everyone and also comes with its own risks. Most likely you have had concerns about how to pay for your child’s education. To easy your anxiety, you can get education insurance. Read on to find out what you need to know about education insurance.
Also Read: Risk Management in 2024: What is an insurance policy?
How Education Insurance Works
Education insurance is a strategic financial tool designed to help you save towards your child’s education. As a parent, a fundamental objective is to guarantee a bright and comfortable life for your children, even if you are not around. These insurance plans assist in accomplishing this goal by facilitating substantial savings, typically for primary and secondary school or higher education costs at the best universities.
An Education Insurance Policy is a unit-linked fund, which means your insurance company will use your premiums going towards your life insurance and invest some of it in a unit trust fund that they manage. Moreover, an education insurance policy also has a protection component that pays out the amount you intend to your nominated beneficiaries in the unfortunate event of your demise, so that the education dreams you have for them continue uninterrupted. Education insurance normally involves:
- Structured Savings: Education insurance plans involve systematic contributions towards a dedicated fund, ensuring a disciplined approach to saving for your child’s education.
- Insurance Coverage: In addition to savings, education insurance often includes life insurance coverage. This means that in the unfortunate event of the policyholder’s demise, the insurance payout can still support the child’s educational expenses. Some policies will pay out the full policy amount if the policy holder dies before finishing all premium payment.
- Flexible Payout Options: Education insurance plans typically offer flexibility in terms of payout options. Whether you prefer a lump sum amount or periodic payments, these plans cater to your specific needs.
To be clear, education insurance is not a way for you to make extra money by investing. There are other smart financial strategies for that. It is a safety net specifically for your child’s education. Let’s look at some benefits.
Benefits of Education Insurance
Getting education insurance can bring several benefits:
- Financial Security: Once again, this is one of the main benefits. By accumulating funds over the years, parents can ensure that the cost of higher education is covered without dipping into their regular savings or facing financial strain. You will always have a fund set for your children’s education.
- Insurance Coverage: Linked to the previous point, this is also one of the main benefits. The inclusion of life insurance coverage provides an additional layer of security. In the unfortunate event of the policyholder’s demise, the insurance payout ensures that the child’s education is still financially supported.
- Disciplined Savings: It should go without saying, but education insurance encourages disciplined savings by requiring regular contributions. This disciplined approach ensures that parents stay committed to their child’s educational goals.
- Focus on Studies: With insurance coverage in place, your children can concentrate on education without being kicked out of class if you can’t cover school fees due to unforeseen circumstances. This can be really embarrassing and inconvenient.
- Tailored Solutions: Education insurance policies can be customized to meet your specific needs and circumstances. Some policies allow you to reduce your premium payments, in the unfortunate event you lose your source of income, to a small manageable amount. Talk to a financial advisor to see what works for you.
- Flexibility in Usage: Education insurance payouts are not restricted solely to tuition fees. The funds can be utilized for various educational expenses, including accommodation, books, and other related costs. It all depends on your policy.
- Tax Benefits: Many countries offer tax benefits on the premiums paid towards education insurance. Moreover, your final sum assures is usually tax free. This can further incentivize parents to invest in such plans, making it a financially prudent choice.
In Kenya, Education Insurance plans get you a tax deduction of 15% on your premiums, with a cap of Kes. 5,000 per month (Kes. 60,000 per year).
Factors to consider with your education policy
The terms and conditions of education insurance policies can vary based on factors such as:
- Age: Younger students may have different options and rates compared to older ones.
- Location: The location of your educational institution can impact the coverage available to you.
- Academic Field: Certain fields of study may have higher insurance requirements due to potential risks involved. Additionally, the school curriculum may also affect the coverage and rates.
- Type of School: Public and private institutions have different rates.
- Liquidity: You shouldn’t commit to anything if you can’t put enough aside for it. Whether you are on a salary or self-employed, you should consider how much you can set aside periodically.
- Policy Term: Most insurance companies offer terms from 8-20 years. It depends on when you expect your child to start their education for them to benefit from your policy.
- Surrender value: You can access your policy cash value at anytime for whatever reason. However, insurance policies are designed for long-term commitments, therefore there could be significant penalties. Some policies might offer options for partial withdrawals or surrenders. Check with your insurance company to clarify.
Conclusion
Many people don’t have a culture of saving, and wait until the last possible minute to secure funding for their children’s education. Education insurance is a powerful tool that empowers parents to secure their child’s educational future. It combines the benefits of savings and insurance, providing a comprehensive solution to the financial challenges associated with higher education. By opting for education insurance, parents can take proactive steps towards ensuring that their children have the opportunity to pursue their dreams without financial constraints. These policies are always flexible and adaptable to your situation and unique circumstances. There is no one size fits all.
Remember to review the details of any insurance policy carefully before making a decision. Talk to a financial advisor to discuss your options and get transparent terms and conditions.
