Your child’s education is one of the most important investments you will make in their future. As a parent, you want to make sure you give your child the best education. And while there are many ways to finance their education, an education insurance policy can provide several unique benefits.
There is a lot of hullabaloos over education insurance policies and whether they are the right product for most people. Education insurance policies are type of life insurance that is specifically designed to cover the costs of your child’s education.
But with so many different types of policies and investment options in the market, it can be hard to know which one is right for you and your family. In this article, we break down what an education insurance policy is and help you decide which one is right for you.
What is An Education Insurance Policy?
Education insurance policies are insurance plans that helps you pay for your child’s education in the future. They are either unit-linked or endowed policies.
- Unit-linked education insurance policies offer you a life insurance benefit and an investment opportunity. The investment option may fluctuate based on the conditions of the market. This means the amount you will receive depends on market conditions.
- The endowment education policy allows you to save an amount for a given period and receive a lump sum at the end of the period. Based on how much you contribute, you will receive a payout called the endowment at maturity.
- Most insurance and financial services companies offer an endowment policy. The endowment policy guarantees the education of your child, whether you are alive or not. The main features of an endowment plan are
- Provides a death benefit that guarantees the education of your child in the unfortunate event death occurs.
- The sum assured is known in advance.
- Offer a maturity benefit if the insured survives to maturity.
How education plans work in Kenya
Education insurance policies are designed to help cover the costs of tuition, books, and other associated expenses. An education policy can be used to cover the costs of both private and public schools, as well as specialized schools and programs. Here is how insurance policies in Kenya work
Step 1
Determine how much you will need to educate your child. After that you will need to check your budget and see how much premium you can afford to pay. You can choose to pay the premium monthly, quarterly, yearly whichever works for you.
Step 2
Reach out to your financial advisor from your preferred insurance or bancassurance who will give you the finer details on how you can achieve the education policy you need. Its important to ensure you understand the terms of the policy you choose. Determine whether you need the endowment policy, or the unit linked policy.
Step 3
After that you will need to contribute premiums towards the policy. The amount premiums paid depend on your children’s education needs.
Step 4
Keep checking the progress of your policy. Make sure you take advantage of the policy tax relief. Incase there are changes there are Child’s future talk to your financial advisor on the best way forward.
The biggest advantage of an educational insurance policy is the coverage it provides. They come in handy in the event of the death, disability, or terminal illness of the parents or guardian.
Insurance education policies are a great way to help secure the financial future of your children. With the rising costs of education, these policies can help ease the financial burden and allow your children to pursue their educational goals.
Education Insurance Terms You Need to Know
- Premium
The premium is the amount you will pay the insurance company for coverage. The amount you will pay is determined by factors such as your age, income, and personal needs.
- Rider
A rider is an optional coverage that policyholders can opt to include in their policy.
- Surrender value.
This is the amount you will receive from the insurance in case you terminate the policy before maturity.
- Sum assured.
The sum assured is the amount the insurance company guarantees to the policyholder. This is the amount you intend to assure with the insurer, also known as the “coverage.” The sum assured depends on the premium one contributes and for how long one contributes.
- Maturity value
This is the amount you will receive from the insurance based on the maturity of the education policy. It includes the minimum sum assured, and bonuses.
- Cash surrender value
This is the actual amount you will receive when you cancel or surrender the policy.
- Reduced paid-up benefit.
The reduced paid-up benefit allows you to get insurance protection and retain some of the benefits without paying additional premiums. Most of the policies retain the death benefit.
- Cash Value
The cash value is the portion of your insurance cover that earns interest and may be available for you to borrow.
Are Education Insurance Plans worth it?
Yes, an educational insurance policy for your child’s education is worth it. It’s part of financial planning. As a parent, you want to make sure that your child has every opportunity to succeed. You also want to be financially prepared for their future. The educational insurance policy will help you prepare for both scenarios.
Since an education savings policy is a long-term investment, it is important to carefully consider all your options before deciding. Here is what you should consider when taking out an insurance policy.
- Start by calculating the amount you will need for your child’s education. Visit the school and inquire about the school fees and other costs. See how much you will need for their education.
- Ensure you have enough to cover your expenses plus the insurance policy.
Which Education Plan is best?
When it comes to choosing an insurance education policy, there are a few things you need to consider. Before you choose an education policy, make sure you do your research.
Your Needs
Before you start searching for an education policy, you must assess your needs. You need to analyze and come up with the following:
- What kind of school and system will suit your child?
- Determine the cost of education.
- Determine what you can afford.
In addition to the above, make sure you consider the effect of inflation on the cost of school fees. This will give you a more accurate figure on how much you need to save.
After you have analyzed what you need, you need to confirm how much you need to save to get the money you require at maturity.
Decide How You Want To Pay For The Insurance Plan
You can pay for the insurance plan every month, quarterly, annually, or in a lump sum. It’s important to ensure you plan your finances well. Failure to remit the premium payment may lead to the termination of the policy and loss of the money you have contributed, especially if the policy does not have a surrender value.
The best way to secure your child’s education policy is to pay a lump sum for the policy. By so doing, you make sure your child’s education is secure. While you can pay for the educational policy monthly, there are chances of default, leading to a loss on your side. Ensure you are making consistent premium contributions.
Tenure Of The Education Plan
You should double-check the duration of the education plan. For example, if you sign up for the policy when the child is 6 years old, you need to know how many years you have left before you need to pay the fees. It’s important to start saving for your children’s university education as early as possible.
If you buy the policy when your child is older, you may find yourself in a financial bind while you wait for the policy to mature.
Benefits And Coverage Of The Insurance Policy
It’s important to make sure you understand what the preferred insurance policy offers. Most insurance education plans offer coverage for death, terminal illness, or disability. Understand how the coverage works and when it can be triggered.
Cost And Fees
Ask the insurer about the cost of taking the policy. You also need to confirm whether there are any costs you will incur when you lodge a claim.
Education Insurance Plan Provider
Because you will be dealing with the insurance provider for the entire year, you must select one who is trustworthy. Make sure you deal with an A-rated provider. In Kenya, insurance companies are regulated by the Insurance Regulatory Authority (IRA). Check to confirm the provider is regulated by the IRA. Here are other factors you need to check:
- How long they have been providing the educational insurance policy
2.The company’s reputation and customer service.
The Advantages of Having an Education Insurance Plan
There are several reasons why you should consider having an education insurance policy. Here are the benefits of having an educational insurance policy:
Fulfill Your Child’s Dreams
You won’t have to worry about your child’s education costs when you have an insurance plan. In the event of your death, your child’s education is guaranteed.
Access To An Education Policy Loan
In cases of hardship, you can access a certain portion of the policy. Most insurers allow you to access a loan after 36 months. You need to pay the loan back plus the monthly premium.
Riders
Riders strengthen the cover. You may have to pay an extra amount to get the rider. Most insurance education policies have the following riders:
- Premium waiver rider
In cases of death, terminal illness, or disability, the rider offers a reprieve. In such circumstances, you are exempt from making monthly contributions, and the education policy is still in place.
- Death Rider & Permanent total disability
In the event the policyholder dies or faces total permanent disability, the beneficiary will receive a lump sum of money.
- Family income benefit
This is an optional benefit that provides an income to the family of the insured in the event of their death.
- Child hospitalization
The rider pays the hospital fees for the insured child incase of critical illness.
- Funeral cash benefits
This rider provides a lump sum to the family of the insured to cover funeral expenses.
Provides Flexibility In How You Pay For The Policy
You can choose the amount of premium you want to pay each month. In addition, you can adjust your payments based on your financial condition.
Avoid Putting Your Child In Debt With Education Loans.
Education loans will burden your child and make it hard to make progress. Give your child a head start by signing up for an education policy.
Tax Benefits
You get tax relief when you sign up for an insurance education policy. You get a 15% tax relief on the amount of premiums paid. The education policy must have a maturity period of 10 years.
Lies that Education Insurance agents sell you
There are many things that education insurance agents will tell you in order to get you to buy a policy from them. However, not all of these things are true. Let us dispel some of the most common myths that education insurance agents use to sell policies.
- Insurance policies is an investment that will earn you a high return
An insurance cover is an investment towards your children’s education but its not the best investment for someone looking for a return. Infact an educational insurance cover policy provides you with security more than returns. If you are looking at a better return there are other investment options that provide better returns.
- The insurance policy will cover the cost of educating your child fully
The ideal situation is to take up a policy that covers the cost of educating your children fully. However this is not always the case. Make sure you do your research and determine how much you need . You need to know tuition fees, cost of books and other expenses before you take the insurance cover. In addition determine the cost of inflation on the premiums you will pay.
3.You can take a loan from the policy any time
Its possible to take a loan from a policy but only it attains a cash value. Most policies gain value after 36 months and even then you can only borrow 80% of the value. This is normally a small percentage in comparison to the contributions you have paid.
- You will get huge bonuses
Insurance companies offer policy holders bonuses periodically. There is no guarantee on how much you are likely to earn. An insurance agent will not know how much you can earn from a policy until the bonuses are declared.
5.If you lose your job and fail to contribute you will get your money back.
Incase you are not able to pay premium , you policy will lapse. If you fail to contribute towards the premium the insurance company will terminate the policy and give you a surrender value. In most cases the surrender value is small compared to your contributions.
Alternative Approaches to Financing your children’s education
There are a number of alternative approaches to financing your children’s education. Some of these options include:
Invest the money in a money market fund.
Invest in a money market fund will earn you up to 10% p.a . with low or minimal risk to cater for the future education needs of your children. This however requires financial discipline to avoid misuse of the funds. Its also important to ensure Incase of untimely death your child can access the funds for their secondary school fees or university.
Invest the money in real estate.
If you have a lumpsum money that you can invest in real estate look out for the best real estate deals. Determine how much you child education requires and buy a property that will generate the amount the child needs when joining university or secondary. Real estate projects such as project 237 by Mivida are good place to start. They allow you to pay for the property in instalments and even before your child joins secondary or university you will start receiving returns.
The Best Education Insurance Policy in Kenya
There are several education plans available in Kenya. Here are the best insurance education plans you will come across in Kenya.
- Elimu Bora Education Plan from Britam Insurance.
- Super E Education Plan by Britam
- Masomo plus By Cooperative
- Career life plus by Jubilee insurance
- Elimisha Education Plan
- Madison Uniplan
- Bima Karo Education Plan from Madison insurance
- Lengo Education Saving Plan from Old Mutual Insurance
- Elimika Education Plan by UAP Old Mutual
- Flexi-Educator Insurance Plan by Sanlam
- Usomi Bora Education Policy from ICEA Lion
- CIC Academy Policy
- Msingi Poa by Britam
- Orientor Educator
- Smart Orient Educator
- Educare plan by Standard Chartered
In conclusion, an education insurance policy is a policy that helps pay for a child’s educational expenses. While the cost of the education insurance policy differs, it’s a wise investment for families that want to secure their children’s future. Make sure you read the fine print and understand what the policy offers. An education insurance plan is one of the components of sound financial planning.
Insurance Education Policy FAQ
What happens when I don’t pay premiums for education insurance?
Failure to pay the insurance premiums as stipulated in the contract amounts to a breach of the insurance terms. Your policy will lapse if you don’t pay the premiums. Depending on the insurer, you may have up to 60 days to reactivate or cancel the policy. If you cancel the policy, the insurance company will consider the surrender value minus the surrender fees and any unpaid premiums or loans, and they can pay you the balance.
If I cancel the policy, do I get the amount of money I have contributed?
No, you don’t get the contributed amount. The insurer considers the surrender value of your policy and pays you after deducting expenses and penalties. If the insurance policy has no surrender value, you may lose all the money you have invested.