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Education Insurance or Education Savings

Jun 09, 2020
5 menit

For parents, providing the best education for children is a necessity. In preparing the education fund, parents should discuss in advance about which school to go to. For example, whether public schools, national schools, or even international schools. For higher education, whether to study at home or abroad. You and your partner can do a survey to schools of interest or consult with financial planners who have research needs education funding. After that, you can calculate the need for education funding and how to achieve it.

Preparing an education fund for children should adjust to the level of school needs. In principle, for 1 child, there will be preparations to enter kindergarten, elementary school, junior high school, high school, and tertiary level. Thus, parents must have a different strategy, namely saving and investing. In addition, parents also need to think about the certainty of an education fund for children by protecting from the risk of losing their source of income due to breadwinners dying. To achieve these financial goals, of course, parents need to consider product choices for children's education funds. Which one to choose: education savings or education insurance?

Savings is a product that can maintain the integrity of the initial capital. Savings will yield returns, but the results can be guaranteed at the beginning which usually is equivalent to the reference interest rate. Meanwhile, a life insurance policy is a protection product to protect family finances if the head of the family who is the source of income dies or suffers from total permanent disability. For parents who choose to buy products with two benefits at once because of practicality, then there are two choices that can be considered.

First, education savings. Education savings are term savings products that usually last 1 year or more, where parents will deposit funds every month until a certain period. In addition to getting savings benefits, parents who are considered insured also get life insurance protection benefits. The usefulness of this life insurance is that savings deposits will continue, even if there is a risk of death for parents. So, children will get the certainty of savings funds that will be used for their education funds later.

Second, conventional education insurance. An education insurance policy is basically a combination of term life insurance products with added savings benefits. The main feature is a life insurance policy that will pay the sum assured if the insured, usually the parent, dies before the child enters the tertiary level. An additional feature is that there is a pooled savings benefit balance. From the savings balance, the insurance company will spend a certain amount of money when the child enters elementary school, enters middle school, enters high school, and enters college. So, if the parent is still alive until the insurance policy ends, the child only gets a portion of savings in the form of the promised payment plus a bonus if any. Please understand that the education insurance described in this article is not unit-linked insurance.

Every financial product must have pluses and minuses, depending on the needs of the family. Educational savings have flexibility in determining the duration because parents are free to save for a period of time how many years. Thus, parents can combine education savings with other types of investment as well. In terms of education insurance, parents will usually be more fixated with the duration of a long-term contract until the child enters tertiary education. However, the plus point of education insurance is that it provides certainty for funding for educational needs for children aged 17 years, regardless of the presence of parents or not.

In conclusion, if parents still want to combine children's education funds with other investment assets, then education savings can be considered as a product that can complement the child's education funding plan. However, if parents pay more attention to ensuring the availability of education funds due to higher risk factors, then education insurance can be a consideration. Whatever the parents choose, the most important thing is to prepare education funding early. So, have you prepared a children's education fund?

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Written by: Prita Ghozie from ZAP Finance

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