March 25, 2009

Should I buy education insurance policy for my children?

I believe most of the parents with newborn baby will wonder whether they should purchase an education insurance policy for their beloved baby. Current education insurance products from various life insurance companies in Malaysia consist of a mixture of endowment and investment-linked insurance policies. I will not delved into the details of each category of such product, but for a brief introduction to children education insurance policies, please go here.

Why do you need children education insurance policy? For some parents, they claimed that it is a must for their children while for others, they mentioned that there are other financial products in the market that can fulfill the education savings purpose much better. Therefore, I intend to list out the pros and cons of having a children education insurance policy.

Advantages:
  • Tax relief: If you buy a children education insurance policy with limited term (i.e. 18 - 20 years) and with payor benefit rider, you are entitled to up to RM3,000 tax relief for medical/education insurance. For details on tax relief, refer here.
  • Savings: For those who don't have the habits of savings, the insurance policy is a good way of forced savings since at the end of the insurance term, there will be some cash values for the children.
  • All-in-one insurance package: You might want to add other insurance coverage, like medical card, to your children education insurance. This is especially possible for investment-linked policies.
  • Piece of mind: Should there be any incident happened to the parents, there is at least some sort of guarantee that there will be a sum payable to the surviving children, if the children are the beneficiaries of the insurance policy.
Disadvantages:
  • Low returns: Children education insurance is basically an insurance product with relatively low return rate. For those with experience in investments, they might do much better with unit trusts/stocks/property investments.
Comments: I think children education policy is a good option for those who don't have the knowledge and time to make their own investments/savings. For me, I prefer to buy term insurance to partially cover for the estimated future cost of education (of course, it is better to fully cover the cost of education if the cost of term insurance is not too prohibitive) and purchase a separate medical card for my children for the medical emergencies.

2 comments:

Peter Lim said...

Whether should buy or not depends on that individual's alternative. And since everybody's alternative is different due to knowledge, experience, skills, network, expertise, etc ... thus i guess the best answer is "It Depends".

jutamind said...

Yes, I agree with you that everyone has different needs. I'm just expressing my view on education insurance in this article.

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