Education, they say, is the only legacy that parents can leave to their children. Ask any sensible parent and they are likely to agree. Unfortunately, tuition fees and other academic expenses are quite expensive. If the cost of tuition doesn’t kill you, the fees for school requirements will. This is why a lot of people are saving up for college funds or buying educational insurance plan.
But many Filipinos, including those who are now living in Australia, have been victims of failed educational insurance plans. They are mostly wary of pre-need education plans today, following the collapse of the company College Assurance Plan or CAP, which some of the victims would vehemently call crap.
As a pioneer in the pre-need industry in the Philippines, it had such promise only to go down the drain without warning. There are plenty of reasons why the company filed for bankruptcy, but some of those affected heard rumors that the company invested the investors’ money on real estate which crashed. Plenty of other companies that offer educational insurance plans suffered a similar fate. But the alternative, which is a college loan, is often worse.
Is it worth buying educational insurance plan? Yes and No.
Yes, because a child education policy provides you with a saving tool that will fund your child’s higher education expenses. With the right cover from the right provider, such as Australian Scholarships Group (ASG), it will take the financial burden off your shoulders when the time comes to send your child to school.
No, because you have to sacrifice part of your salary to meet the contribution requirements. Although there are tax advantages and you are forced to save for educational funds, you will have to be disciplined in creating a budget and sticking with it.
But education savings plans offer a tax-free investment for education. But it is important that you find out the kind of leverage that these plans have over your money. Before you buy a child education policy, consider other investment alternatives, such as mutual funds, managed funds, shares, insurance bonds or online savings accounts.
Similar to making a decision on whether or not to buy an education insurance plan, you also need to consider the pros and cons of other alternatives.
An online savings account, for example, is readily accessible, which may tempt you to make a withdrawal at any time.
For a more successful educational fund, you should look for a long-term investment timeframe.
Insurance bonds, on the other hand, work like a managed fund where you can nominate an age when the ownership of the investment will be transferred to your child. This also comes with tax advantages. However, getting started requires entry, management and other fees.
The advantage of other investment options is that you have the freedom to choose when to start and what strategy you will use to see more returns. Some financial vehicles have lower marginal tax rate. Unfortunately, earnings will be taxed as well.
How you fund your child’s education is an important decision that you have to make at an early date. Don’t wait until your child has reached school age and that the premium for educational insurance plan is high. The same thing is true if you decide to invest in managed funds or stocks.
If you choose an educational insurance plan, make sure to choose a policy based on how much money you can set aside for the premium, the offer of flexibility of a particular policy and the benefits you and your child will gain.
Did you find this article useful? Do you have some ideas of your own that you can share to our readers? Share your own experience by leaving a comment below.
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