You’ll agree with me when I say;
Education is very important including tertiary education but the cost of going to college is now more expensive in the U.S.
In fact, some of the colleges’ fees have almost doubled over the last decade.
Harvard, for instance, paid an average of $48,868 in 2010 but in 2020 their fee increased to $72,357.
This college fee has no plans of reducing even in the future.
Moreover, the college fees are not just increasing because these schools want to add some extra cash to their pockets but because of other factors, one of which is economic trends.
According to a 2015 Moody’s report, there has been more focus on other mandatory spending programs of the year, especially Medicaid.
These programs are requiring more and more from the state’s funds and have reduced money for other programs.
Economic trends are one of the highest factors affecting tuition increase in the U.S.
That is one of the reasons having insurance for your kids education is very necessary after high school, it’s also important to get life insurance as an Expatriate if you travel outside the U.S a lot or work abroad.
First of all, let’s see what insurance for child education means.
Approved Meaning of Education Insurance Policy
Insurance for child education is a type of insurance policy that takes care of your child’s educational cost when he/she reaches 18 and above years and is ready to go to college.
The funds go a long way to even secure your kid’s educational fees even if you’re no longer there. The policy can cover their tuition fee, their hostel fee, and even their health.
There are two types of insurance for children’s education in the U.S;
Endowment Insurance Policy
It’s typically like a life insurance policy. But unlike life insurance policy, it covers both lives of the beneficiaries and can also help the policyholder in savings.
This savings occurs over an agreed period so that when the time lapses, there will be a lump sum of money. The interesting thing is that the policyholder can enjoy this lump sum even while alive.
And, from this lump sum, is where the policyholder can pay for his/her kid’s college fee.
Further, if the policyholder dies within the policy terms, the money can be funded for his/her kid’s college fee, as a death benefit.
To get insurance for child education through an endowment policy, you don’t need a medical exam, unlike most life insurance policies.
Endowment insurance policy generally costs less, and it’s Risk-Free.
But the issue is, low-risk investments don’t always bring good returns. That means you might not save enough money to pay for your child’s college.
And the other dark side is that the endowment insurance policy is taxable.
Investment-Linked Insurance Policy (ILP)
In an investment-linked insurance policy, you can combine both investment and insurance coverage. That is to say, when you pay your monthly premium, some of the money will go to your insurance coverage and the remaining amount will be invested in either equity or bonds.
Nevertheless, to do this both, it is more expensive. But the money gotten from this investment is a lot bigger compared to the endowment policy. And you can use it to fully fund your kids’ college.
ILP is not just insurance for child education, you can also use it to pay for debts, generate retirement income, or even build wealth.
When the investment the insurance company made with your money goes well in the market, you can receive a very huge sum of money. That said, the Investment-Linked Insurance Policy does not guarantee a return.
Your returns will depend on the success of the investment. You could make little cash from it or a lot of money.
Most interestingly, ILP is flexible, you can decide to switch between equity and bonds over and over.
6 Professional Benefits of Insurance for Child Education
There are other ways to plan and save for your child’s education. There’s the RESP (Registered Education Savings Plan), the Education IRA, even the Custodial Account.
However, let us see what makes insurance for your child’s education unique and beneficial.
Double Achievement
You kill two birds with one stone through insurance for child education. On one hand, you invest, and on the other hand, you have your life insurance.
Death Benefits
Another interesting part of insurance for child education is the death benefits the beneficiaries will get on the occasion of the death of the policyholder.
In fact, when there is a disability which might lead the policyholder not to be able to pay the premium again. The insurer will have to pay these benefits even while the policyholder is alive.
Lump-Sum
When you opt-in for Investment-Linked Insurance Policy (ILP) you might get a huge amount of money that can comfortably pay for your child’s fee. And you still have extra cash.
Premium Waiver
Premium waiver makes it possible for your child to still receive their college benefits in full in the case of death, critical illness, or disability.
This makes it possible for the future you want for your child to still be possible even when you are not around.
College Expenses
You can see the soaring of college fees even in the U.S. So it is more than necessary to invest in Insurance for child education as soon as possible.
Periodic Payment
In the case of an emergency or you need to pay for your child’s music lesson (which could be outside the college fee) you are legally permitted to withdraw some funds.
Scientifically Proven Ways to Financially Plan Your Child’s Education
As a parent, we always want the very best for our kids. For you to be here, means education is one of those best desires you want for your kid(s). And surely, it is the best gift you can give them.
A Chinese proverb said, “If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people.”
Everything boils down to proper planning. Here are some insurance for child’s education planning tips.
Start Early
“If given the choice between 20 years experience and expertise,” said Josh Brown, “vs. 20 years extra time for compounding, I’d take the time.” (Josh Brown is CEO of investment advisory firm Ritholtz Wealth Management).
For Instance, if you started investing as little as $30 per month through compound interest, for your child’s education. When your child is 18, you will have more than $14,000 in your account.
However, if you decide to wait till your child is 5 years old before you start investing, then the money you will get when your kid is 18 will fall by almost half. That is, you might be getting $8,000.
So with insurance for children education time is very important.
That said, it doesn’t mean all hopes are gone if your kids are above one year or even above ten years.
Like the Chinese proverbs said “The Best Time to Plant a Tree Was 20 Years Ago. The Second Best Time is now.”
So you can still invest wisely in your kid’s education even if they are above 5 or 10 years.
Most importantly, if you invest this money in Insurance like an equity plan, you will see a far better return.
Estimate the Cost of Your Child’s Education
This is another important consideration to have in your kids’ educational planning toolbox. You need to know their tuition fee, boarding fee, and other expenses that might come up.
Also, you need to consider inflation in your study.
For instance, if a private college fee is $50,000 in 2021, and your child should attend it in 15 years from today @ 2.3 percent annual inflation rate. The fees in 2036 would be $69,960.
You see an additional $19,960 due to inflation. So that’s one of the reasons you should estimate your child’s educational cost.
Another reason this estimate is important is that you’ll know which insurance for Child schooling you need in the U.S.
Get Yourself Insured
If you have planned to start early, and you have made an estimate for your child’s education fees, the next is to get good college insurance for your child.
We don’t pray for misfortune, not even death, but you need to prepare your child against the storm. So in case you are no more, your dream of sending your kid to college will not die.
Insurance for child education is very crucial, to keep your kids in college even though there is death or disability that will make you unable to temporarily/permanently work.
Balance your Finance
As much as you want to invest in your kid’s education don’t forget about other essential parts of investments like your retirement plan.
Dependable Ways to Choose the Best Insurance for Child Education
Scattered around the U.S are lots of insurance for kids’ education plans, lots of them come with enticing offers. And when you have lots of options to choose from it makes your choice more complicated.
Here are some of the things to consider before settling with one of the insurers.
Look for an Insurer With Premium Waiver Benefit
Premium waiver benefit is the situation where the future premium of the policyholder is waived off due to unforeseen circumstances. For instance death, temporary/permanent disability, which will make the insured unable to pay the premium.
You should verify if the insurer has this benefit or you have to get it through a rider, which will cost you an extra fee.
Also, there are other stipulations that the rider might cover, like reaching a certain age or having some health conditions.
Further, most premium waivers have a waiting period, that is, if there was an unforeseen circumstance during the waiting period, the benefit won’t be paid.
And, for the premium waiver benefit to take its full effect, the policyholder will be deceased or be disabled for some months (maybe for 6 consecutive months).
With the help of a premium waiver, you’re well assured that, even if you’re not able to be there for your kids in their college, their insurance for child education is totally covered.
Play Safe With Endowment Insurance Policy
An endowment insurance policy helps you to invest in insurance for child education, risk-free. Also, it offers low premium payments.
However, as I said earlier, any risk-free investment or low-risk comes with little returns. And, the endowment insurance policy is not exempted here.
Your return might not be able to fully fund your child’s college fee, depending on the college and course you want your kid(s) to offer.
Further, if you plan to invest in an endowment insurance policy for your child’s education, you should consider starting very early. At least a 10 years gap.
So, if you are ready for the market uncertainties, and want to accumulate enough finance for your kid(s) then ILP should be your best choice.
Investment-Linked Insurance Policy (If you are the risky type)
Yes, if you don’t mind taking risks for the big cash for your insurance for child education, then ILP should be your right option. Like I told you ahead, this insurance allows you to invest for a higher return.
However, your return is based on the market, and the kind of equity or bond your insurer invested in. If it goes bad you might have little or no money remaining. But if successful, you might even use the money accumulated to build wealth.
Critical Questions to Ask Before Purchasing Child Education Policy
Going straight ahead to purchase Insurance for your child’s education is not that advisable. You need to consider some important factors and ask some necessary questions.
Here are some of the questions you need to ask before getting Insurance for child education in the U.S.
What is the financial Situation Of My Family?
This is an important question that needs a sit-down-and-think answer.
In as much we need the best school for our kids if you can’t afford private school for your kid. Or if the monthly premium you intend to pay for your child’s college fee will affect other parameters at home, please you need to re-plan.
State schools are less expensive, and it will require little funds from your monthly pocket to invest in the Insurance for child education.
However, if you can pay a good monthly premium to send your child to a private college, please go right ahead and pull that investment.
What Kind of Life Insurance Do I Need?
You have the endowment and Investment-Linked Insurance Policy to choose from. After you have analyzed your financial capacity, it enables you to know the best type of insurance for child’s education you need.
For instance, if your financial capacity is not so big yet, then there is no need to put your eggs in one basket. That is, you don’t need to invest in an Investment-Linked Insurance Policy (ILP) which might not come out so well if the market goes bad.
Playing safe with endowment should be your option.
Nonetheless, if you can invest in equity too through (ILP) which might yield a good return in the future, then don’t hesitate.
What is the Company’s Claim Settlement Ratio?
Claim Settlement Ratio shows how fast and accurate an insurance company deals with claims. If a company handles claims immediately without hassle, then you should consider shopping for their quotes.
Will Your Child Depend On You When You’re No Longer There?
If your child’s education depends on your presence, then that’s more reason you need Insurance for child education. Because it will secure their college even in your absence.
Insurance for Child Education Conclusion
I believe in this complete guide you have seen the importance of a child education plan in the U.S and how to go about getting the best premium for your kid.
If you’ve not started investing, and you have at least a kid, the best time to start is now.
What do you think about “the definitive guide to Insurance for child education?”
Do you think it’s the best way to save for your child’s college?
Or are there other options you would love to see?
Either way, let me know by commenting NOW below.