Save for your child’s education with a capital insurance plan
A common misfortune for parents is to fund their children’s future. One way to solve this problem is to make proper use of the various endowment insurance options in Singapore. Raising a child here is expensive, and the financial future of your child’s education is a concern for every parent. Fortunately, endowment funds can help ease this worry. Although endowment plans can be used to plan for all of life‘s events, in this article we’ll discuss some of the factors you should consider as well as your insurance savings plan options. Here’s what you need to know to get started.
Start saving early
Perhaps the most important aspect of saving for your child’s education is to start early. Higher education, such as a college degree, can be significantly more expensive than primary and secondary school. It can be considerably easier to save a large sum for these expenses by starting to save early.
It’s never the right decision to delay saving. Most people find it much easier to pay small premiums over a long period of time rather than having to suddenly cough up larger sums quickly later. Therefore, the later you start saving, the sooner you will need to save and the higher your premiums will be.
Consider payment flexibility
It is worth considering when you will receive your payments. Some plans provide a lump sum upon policy maturity, while others would have multiple payment terms that can be programmed to drop during your child’s college years. Yet others are more dispersed and will start offering payments before your child enters college. Having the ability to access part of the payment before or after college can help foot the bill for some of the associated costs, such as airfare to attend overseas admissions interviews and accommodation costs after graduation.
Some plans may include annual cash benefit withdrawals after a certain number of years. This additional payment can either be withdrawn or reinvested in the endowment plan. You may consider reinvesting your payment into the Endowment Plan if you intend to spend that payment on a particular life event when the policy expires.
Plan your expenses
Where and what do you expect your child to study?
The projected costs of a higher education in Singapore can vary greatly depending on where you want your child to study. Local public universities are often more affordable to study than private universities or study abroad.
|Education levels||Costs to take a course|
|Primary school||S$390 – S$780|
|High school||S$1000 – S$24,000|
|Junior College (JC)||$594|
|Institute of Technical Education (ITE)||S$410 – S$3,210|
For example, while it costs S$17,900 for a Singaporean citizen to study engineering at Nanyang Technological University (NTU) in 2022, the average cost of studying engineering in Canada was S$34,587 Singaporeans in 2022. Also, studying abroad brings with it the additional costs such as flights, accommodation, and other living expenses. Another contributor to college tuition is the field of study your child is entering. While it only costs S$8,200 to study Arts and Social Sciences at the National University of Singapore (NUS), it costs more than 3 times as much, S$28,900 to study medicine at the same university.
|Program||Subsidized – SG Citizen||Subsidized – SGPR||Subsidized – International||Not subsidized|
|Arts and social sciences||S$8,200||$11,500||$17,550||$29,850|
When do you think your child will start college?
Typically, the cost of an undergraduate course is expected to double over the next 20 years. The costs of education, especially those of higher education institutions, have steadily increased, with education costs now 76.1% higher than they were in 2001. This means that in theory, an undergraduate course that cost S$50,000 in 2001 would cost more than S$88,000 now. During this period, the only year prices have fallen is 2020, so it’s essential to know when you expect your child to start college and to estimate the cost of their education well in advance.
Types of Endowment Insurance
There are 3 types of endowment insurance that can be useful for saving for your child’s future: traditional capital accumulation plans and education savings plans.
Traditional endowment plans
Traditional endowment plans are the most common endowment plans. They follow a simple model, you pay premiums based on the payment option selected, and once the policy matures, you receive a payment. An advantage of this type of endowment is that you may already have such an endowment plan, and these funds can be used for your child’s education. Some traditional endowment plans allow you to withdraw cash benefits from your policy under certain conditions before your plan matures and provide another source of funds. Note that this withdrawal reduces your payment at maturity. Therefore, if you plan to save for a large expense after the plan matures, it’s probably best to use the option of reinvesting cash benefits into the endowment plan. An example of a traditional endowment plan is Prudential’s PRUActiveSaver III plan. It is a simple endowment plan with a contract duration of 10 to 30 years with 100% guaranteed capital at contract maturity and no annual cash benefit. It also offers multiple payment methods, including regular, limited, and single-premium options.
Education savings plans
The main attraction for education savings plans is their namesake specificity, education savings. This makes it an ideal option for parents looking to save for their child’s future education. Often, when looking for a college savings plan, parents can find an assortment of different payout options. More often than not, these payment terms are spaced out, some before the plan matures and some after it matures. An added benefit of this type of plan is that the insurance that comes with it will cover your child, although it’s up to you to compare life insurance to lump sum insurance to find a combination that gives your child the coverage you search. The Tokio Marine Kidstart is an education savings plan option. This plan has terms that last until your child is 20 to 23 years old. It also offers 3 progressive payments over the last 3 years of the plan that you can withdraw. In addition, in addition to the death and total and permanent disability guarantee (TPB), the premiums for this plan are exempt if your child is diagnosed with autism, severe asthma or leukaemia.
Other staffing plan features
Payment options also vary in these endowment plans, payments are most often made as regular, limited or one-time bonuses. The regular salary The option is the easiest to understand and simply requires the regular premium to be paid throughout the plan until maturity. These plans often have a lower premium per payment.
Limited compensation Options are similar to regular payments in that you will be required to pay a series of premiums over a period. However, the difference is that this payment period will be shorter than the duration of the plan. Last but not least is the single bonus option, where you will pay a large sum once. This payment option, although available for both long-term and short-term plans, may have long-term savings implications.
Participant vs non-participant
A common area of concern with staffing plans are the risks associated with the plans. A contributing factor to this risk is whether the plan you have chosen is a participating or non-participating plan.
A participating plan refers to the participation of part of the premium you pay in the investment fund of your insurer. Your payment is therefore divided into 2 categories, a guaranteed bonus and an unsecured bonus. The guaranteed part of your payment is simply that you are guaranteed to receive this amount when your plan matures. However, the non-guaranteed bonus is determined by a combination of the performance and expenses of the participating fund, as well as claims made on the fund. A common practice of insurers to avoid large fluctuations in reported premiums is to smooth premiums over time. Bonus smoothing refers to withholding bonuses when fund performance is good, so that bonuses can be maintained in less favorable times. The result is more stable premiums which may not reflect the volatility of the investment market. Moreover, often the bonuses are declared annually after the first 2 years of the policy, and this bonus is guaranteed after the declaration.
Plan without participation
A non-participating plan is simply a plan where all returns are guaranteed and will be received when the policy is held to maturity, although you will not receive any bonus regardless of how your insurer’s fund performs. Of course, while participating plans may result in larger payouts, they carry higher risk than non-participating plans.
The financial strength of your insurer should also be an important concern for anyone considering an endowment plan. Although different sources may not agree on the exact credit rating of different insurers, they are still a good way to establish a benchmark credit rating that you can trust for your investment. Several credit agencies you might refer to for these credit ratings are Standard & Poor’s, Fitch, and Moody’s.
The needs and requirements of each parent vary greatly. While college savings plans are the obvious choice, especially if you’re looking to start a new savings plan for your child’s education, traditional and retirement plans may also have a place in contributing to the funding the cost of education, either directly or by helping manage your finances and simplifying the decision-making process. Now that you know what you’re looking for, it’s important that you understand the features and language of endowment policies so you can make the best decision for you and your child.