Child education planning is a life insurance product specially designed as a savings tool which will provide an amount of money when your child reaches the age for entry into college (18 years and above). The funds can be used to pay for your child’s higher education expenses. Under this policy, the child is the life assured, while the parent/legal guardian is the policy owner.
 
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  The first step in determining the amount of coverage you need for your child education plan is to have a goal in mind. What are your goals for your child's education? The following are some of the factors you may need to consider in determining the level of coverage:  
     
 
 
Place of study
  Level of qualification
Local or abroad? If abroad, what is the likely country of choice and related costs of living?
 
Diploma, degree, or beyond? Doctorate perhaps?
University of choice
  Field of study
A top-notch university will cost more.
 
Some courses may involve higher costs than others.
Length of study
   

Longer duration means higher
incidental expenses.

   
 
 
     
  Working through these factors will help you figure out the expected costs. As a guide, you may try to calculate an example of how much you’ll need.  
 
 
  Since the education costs will be incurred in the future, you need to also account for inflation.

Once you have factored in inflation, you may end up with an amount you find difficult to afford. However, the good news is that by wisely putting your money to work through a savings or investment plan, the returns from such investment or savings can be accumulated over the years to help cover the costs.
 
     
 
     
  The policy you purchase depends on your objectives and your risk tolerance. Before you buy a policy, ensure that your agent carries out a fact-finding evaluation process so that the policy recommended is based on your needs and financial capacity.

It would be useful to choose a policy that will allow you access to the funds when needed, i.e. the policy matures when your child starts higher education, or the policy allows you to receive part of the insurance benefits prior to maturity, if necessary.
 
     
     
 
Ensure that you opt for the payor benefit rider
 
Look for a policy that waives premium payment in the event the parent/legal guardian can no longer pay for the policy, arising from events such as untimely death, diagnosis of a critical illness or total and permanent disability. By opting for the payor benefit rider, your child's education fund will be taken care of should anything happen to you as the parent/legal guardian.
 
Monitor the funds
 
After you buy a policy, you need to monitor it to ensure that you are on your way to reaching your goals. Actual returns declared by the insurance company may differ from initial illustrations (particularly for participating policy and investment-linked policy) due to changes in financial markets. You may also find that the actual cost of higher education may differ as the course chosen by your child is different from the one initially planned, or currency exchange rates may rise and fall if an overseas education is preferred. If there is a shortfall in the funds required, some policies do provide an additional benefit of a study loan.
 
Check whether the policy qualifies for tax incentive
 
One of the benefits of using life insurance as a savings tool for a child's education policy is the tax advantage. Insurance proceeds are tax-free and you can also obtain an annual tax relief of up to RM3,000 for the payment of premiums for education insurance, subject to approval by the Inland Revenue Board.

In order to qualify for tax relief, the education plan must be taken up by the parent/legal guardian and it must mature when the child reaches the age of between 13 to 25. It is also important that you opt for a payor benefit rider throughout the life.
 
Make sure that the premium is affordable
 
Saving through insurance disciplines a person to regularly continue putting aside money year after year. It is a long-term process and therefore, you need to be realistic in estimating how much you can afford based on your current income and expenses. If you start on an amount bigger than you can afford, you may end up having to terminate the policy early and incur financial loss. So, if you cannot afford much now, start with a small amount.
 
Do not add unnecessary coverage
 
Many education policies also offer the ability to add insurance coverage like hospital and surgical medical insurance, or critical illness coverage.

Be careful about adding too much insurance coverage as the costs will affect the amount of savings. Furthermore, bear in mind that you are insuring the life of your child, and certain coverage like critical illness may not be essential as the chances for such illness in children may be minimal.
 
 
 
     
 
     
 
For specific details on how you or your beneficiaries can claim your child education plan, contact an insurance company or their agents.

They will be able to guide you through the process and offer good advice as to the options available to you.
 
 
 
 
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For more information on child education plan, please download our booklet or contact
an insurance company to learn more about the policies they offer for child education plan.