Tuesday, February 26, 2008

Education Plan

Dear Mr. Tan,
I recently bought an education policy for my son. The agent said that it is the best way to save for his future education. What are the advantages of this policy, compared to your recommendation to save in an investment fund?

The advantages of the education policy are:
a) It forces you to make regular savings over the term of the policy
b) In the event of premature death of the parent, the guaranteed sum assured plus bonus is payable (which is higher than the total savings)

The advantages of the investment fund are:
a) The maturity payout is likely to be 10% to 20% higher than the education policy
b) It gives greater flexibility
c) You can insure against premature death through a low cost decreasing term insurance.

In today's environment (comparing the cost and benefits of both options), it is better to save through a low cost investment fund, and buy term insurance to cover premature death.

If you buy an education policy, compare the return from various insurance companies and choose one that gives a higher return, due to lower expenses.


Anonymous said...

'Traditional' education plan is basically an endowment but with some rubbish thrown into it to dilute the return. Reason is most insurance agents do not know how to sell a pure endowment that they need help from company to include some useless features to be different from competitors and bluff the public.
First there is no need for protection or waiver becuase it is assumed that the proposer(parent) of this plan must have already insured adequately to cover his death , and education fund is included.To include protection and waiver there is charge on the premium and this dilutes the return. If the parent or proposer has no insurance the education plan should NOT and must NOT be recommended. It will fail in the event of the death of the proposer even you have waiver of premium if the family is in financial difficulties.
Heed the advice by Mr. Tan to invest separately and if there is need for insurance buy a decreasing term to cover the duration of the saving and investment.
Remember that education funding need comes after all other needs are in place. It is low in priority. It may be high and desirable and an emotional one with parents but let your head decide instead of your heart.


Anonymous said...

Mr Tan
I bought the Foundation Policy from NTUC Income, with the special waiver. Now that I am sure I have adequate coverage myself, do you advise me to cancel the waiver and save on the premium?

Regards, Peter

Anonymous said...

Trim off all useless frills and reinvest in something that goes to enhance your needs.

Anonymous said...

I agree with Zhumeng. Waiver of premiums is a fancy but useless frill benefit, if one as adequate protection.

In Singapore, there is no need to worry about not having enough to send your children to university. There are countless bank loans avaliable, in which the loan can be repaid by the children in around three years time. They can also work part-time. With 168 hours a week, surely they can teach 6 hours of tuition to earn their own allowance?

Do not think you are letting them down. It is an excellent character building experience. They will grow up to be responsible and mature adults, with a good money sense.


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