All About “Child Education Policy”

What is child education policy?

The child education policy is a life insurance product specially designed as a savings tool to 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. 

When Policy should you purchase?

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.

Why child education policy Is important?

Your Child’s Education:

You need to provide quality education for your child. Education being expensive, children education planning is a must.

Your Child’s Marriage:

Marriage today costs lakhs of rupees. Children Education Planning, helps you to save for this expense.

Rider Benefits:

You must avail waiver of premium rider to ensure your child gets a good education, even if you are not around.

Tax Benefits:

You get tax deductions on the premium you pay for the child plan. The amount you get on maturity of the plan is tax free.

Factors influencing child education policy:

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.

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.

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