Education insurance policy is designed as a savings tool and can be converted to a lump sum of money that covers your children university/college tuition.
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 you understand this better here is what you need to consider before considering taking an education policy:
1) Take a look at your finances: The first step is to know where you are financially and budget your money to know where you will spend and where to save. Don’t overspend, aim to save more. Spending is easy but saving is tough.
Tip: If you have access to a financial advisor, grab your spouse and seek their assistance. Ask them to teach you how to budget better to avoid stretching yourself too thin.
2) Start Planning Early: it is easier to save smaller sums of money than from large portions of your earnings.
Tip: Calculate how much you need to or can afford to save.
3) Protect their future: sometimes, unfortunate circumstances may lead you to deplete your savings. To protect your kids against this, get the right education insurance policy with the right Insurance partner, for your child(ren)’s future.
Tip: Do thorough research of the policy options to you to ensure that you pick the right one for your family and your pocket. Ask friends, search online and talk to industry experts.
4) Set realistic and specific goals: As you think about your future and that of your children, especially with education, ask yourself and your spouse these questions, then use that information to divide your goals into short term, medium term and long term:
a) How old your children are now, and how long do you have to save for their education?
b) Are they likely to go to University or do their interests and abilities point in a different direction?
c) Will they live at home or away during their campus education?
d) Will you pay the entire university fees or will your children also help by getting jobs or take out student loans?
e) Will your children be able to get scholarships, grants, or financial aid?
f) Can any other family members help out?
g) Can you get an education policy early in their lives or at their current stage to help with their school fees?
Tip: Set specific goals, for example, if I want my child to go to school X, I need to save Y amount of money every month to make that a reality when they get to that age. With specific goals, you’ll be much more likely to stick to your plan.
5) Loans/Debt: If we all could, we would have enough money to live off and spend, however sometimes debt and loans are inevitable. A recent article in the Economist had these few pointers to think about before taking out a loan.
- The first rule of smart borrowing is what the older generation has been telling us all the time: don’t live beyond your means. Take a loan that you can easily repay.
- Ensure timely and regular repayment –It pays to be disciplined, especially when it comes to repayment of dues.
- Don’t borrow to splurge or invest – It is one of the basic rules of investing. Never use borrowed money to invest. Ultra-safe investments like fixed deposits and bonds won’t be able to match the rate of interest you pay on the loan.
Ensure you shop for good rates before committing to a loan.
- If you take a large education loan, it is best to take insurance cover as well. Buy a term plan of the same amount to ensure that your family is not saddled with unaffordable debt if something happens to you.
6) Emergency Fund: While most people think that it’s not important, most financial experts advise that if you are working,an emergency fund. It involves setting aside money for a rainy day e.g death, loss of a job or a debilitating illness. Ideally it should cover 3-6 months of your living costs. It would also cover your children’s education for a few months as you find your feet again.