Plan ahead for the children’s education

Saving for your child’s education fund is a long-term commitment, so be realistic about what you can afford. – File photo

WITH inflation and the cost of education going up year after year, parents need to plan ahead if they want to send their children for further studies.

A child education policy should have medical protection as well as savings, says Andrew Liao, a senior wealth planner with Prudential Assurance Malaysia Bhd.

A lot of people place savings as low priority, thinking they only need to worry about it when the child is older. In fact, it is a long-term commitment and one can begin, painlessly, by putting aside a small amount monthly, until it becomes a habit to save.

“When a child is born, you should have both medical plus education insurance,” Liao adds. “You can design a plan for protection, and add to it later according to your budget.”

Now, there is even a policy which protects both the foetus and the expectant mother.

Liao emphasises the need to look at protection for the parents as well because, should anything happen to them, their child will be protected. “It does not have to cost a lot. You can start with as little as RM100 a month, and adjust the policy as the years go by.”

What are the savings and investment tools available for those who want to finance their children’s tertiary education?

Normal savings plans, fixed deposits and unit trusts are the more common options. There is also the National Education Savings Scheme (SSPN), designed especially by the National Higher Education Fund Corporation (www.ptptn.gov.my/web/english/FAQ-english/SSPN).

Then there is the child education policy. Basically, this is a life insurance plan designed to provide the child with a sum of money for university or college.

By combining protection with savings, it is one up on the savings plan. Besides, there is the “continuity” factor.

An ordinary savings plan stops should something unfortunate happen to the parent paying for it. But with child education policies, most insurers offer a payor rider. This means future premiums will be paid for if that parent becomes disabled, or dies.

Thus the child’s education fund is secured and will continue to grow. And when the policy matures, she will have the financial means to further her studies.

In view of how the cost of higher education is expected to increase over the years (see chart above), starting early will give parents more time to accumulate enough funds for their children.

But what are the things they need to know before signing up for a policy?

First, decide where you plan to send your child (a local university or abroad?), the field of study and how long the course will take. This will influence the expected cost of education. Often, parents fail to save enough and have to resort to loans when the time comes.

Determine your budget. Decide the amount you can set aside monthly, or annually, and ensure that you can afford the premiums in the long run.

Factor in inflation and escalating costs for tertiary education. Review your policy every one to two years because as the economy changes, your financial situation may change too.

Diversify your financial portfolio. If possible, get a wealth planner to help you find the best products for your needs. Having different kinds of investments – which give different returns – means better protection because you won’t have to depend on just one form of investment.

Finally, buying a child’s education fund entitles you to tax relief of up to RM3,000 for the payment of premiums.

Visit the Inland Revenue Board’s website (www.hasil.gov.my) to see how you can save for your child’s education and pay less tax, too.

Credit : thestar (Sunday November 21, 2010)

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