Being a parent is the most beautiful thing, and you are never alone in your thoughts. You are constantly thinking about your kids, the memories you create together, their day-to-day needs as well as their future needs. We all want our children to have the best childhood, access the best things in life, and more importantly, we hope to be around and see them grow into fine adults. Education is a primary need for our children, and we all do our best to help them access quality education from kindergarten through to higher education levels.
I know you have heard about education plans and policies, and there is that one agent who keeps calling you every other week requesting an appointment to sign you up with one and you keep wondering, what is this hype about education policies? Do I really need it? Of course, these reservations are normal, especially when making any financial commitment.
What is an Education Plan/Policy?
It is a savings/investment plan with a life insurance benefit, guaranteed interest gains, cash bonuses, and lump-sum payments within the selected term of the investment. You can use the payouts to pay for your child’s education, purchase land, take that vacation or spend in any other current or future expenses.
Do I need an Education Plan?
This is a great question to ask. Do you have people depending on you financially? Would you or your family suffer financially in case you were diagnosed with a terminal illness, got permanently incapacitated due to an accident or sickness or worse if you passed on? If yes, then you will likely need an education plan.
How do I contribute?
Like we said it’s a savings/Investment plan meaning the main aim here is to discipline yourself towards a savings culture. Contributions are done periodically e.g., monthly, quarterly, or once a year. Most companies will have several methods of payment e.g., through mobile money transfers, Direct bank deductions or payroll deductions (For employed investors)
Where will the insurance companies invest my contributions?
They invest in various instruments such as bonds, real estate, Government securities and other approved liquid investments to generate interests. Remember you are guaranteed to receive gains on your savings, so money must be invested.
How much do I need to contribute towards an Education Plan?
I advise my clients to contribute the amount they feel comfortable with since most insurance companies set a low monthly contribution e.g., from Kshs. 3,000. I believe Education plans are fun when you don’t have to break your back doing it. Your agent will ask you a few questions to help determine your sum assured and premium (your contribution). At this stage you will need to consider the following:-
- The guaranteed amount of money you want to receive upon maturity of your plan (Sum assured) e.g. 1M, 2M, etc.
- Your monthly income
- How much are you comfortable contributing
- The number of years you want to save/invest (Most plans range from 4Years to 25Years)
- Other benefits that you may require e.g. last expense, critical illness etc.
Why can’t I just save my money in the bank or Sacco?
There are many merits of saving money with a bank or SACCOs one being you can access your money or get a loan facility easily which is important for meeting your current expense. However, Education plans are superior investments products which are tailored to benefit you, your family, your dependents, and business in the following ways: –
Most plans offer cash bonus payable for several years before maturity of cover. This can be used to cater for your family needs e.g. school fees, boost your business etc.
High interest rates
Considering the life benefits attached to the plans, your contributions are guaranteed to yield gains. This means that the total payouts will be greater than the amount you contributed.
Cover against Critical Illness
If you are diagnosed with any listed critical illness for the first time during the period of the plan, the insurance company will waive all future premium (You immediately stop making contributions) and receive all the bonuses and payouts when they fall due. Some companies will pay you up to 50% of the sum assured immediately after diagnosis and still pay you the 100 % of the sum assured and bonuses when the plan matures.
N.B Common Listed Critical Illnesses are: Stroke, cancer, Kidney failure, Major organ transplant, Heart attack, Coronary artery disease, Paralysis or Paraplegia.
Permanent Incapacity due to Sickness or Accident
In case you suffer permanent disability because of sickness or accident and the company is satisfied that you are unable to work, you immediately stop making contributions and receive all the bonuses and payouts when they fall due. Some companies will pay you up to 50% of the sum assured immediately after you are incapacitated and still pay you the 100 % of the sum assured and bonuses when the plan matures.
Accidental and Natural Death
In case of your demise, you family, children and everyone else that depend on you financially will suffer a great financial loss. The Education plan ensures that your children and other dependents will not be let destitute since you are no longer there. Some insurance companies will give your dependents a percentage of the sum assured ranging from 50% to 100% within 90 days of the bread winners demise and pay all other payouts and bonuses when the plan matures.
You will enjoy a 15% insurance tax relief on all of your contributions and the insurance company will provide you with a tax relief certificate. For employees being subjected to PAYE, your HR will factor in the relief through payroll while self employed individuals can seek refund from KRA when filing for annual returns.
Affordable contributions and cheaper for younger people
You will be surprised to know that education plans are probably 3X lower than you think considering the living and death benefits. For young people (Below 40 Years) the rates are very friendly.
Did you know that most insurance companies offer loan against your plan after several months of successful contribution? Well, now you know.
What are the disadvantages of taking an Education Plan?
Expensive for Older and unhealthy clients
Education plans have a life benefit and for clients aged above 40 years or if your family has a bad medical history, the premiums maybe higher. However, the plan will be helpful to your family though you will have to dig deeper into your pockets.
Easy to be deceived if not well informed
Education plans are not a get-rich-quick scheme and I have seen clients investing without getting full information from the start. It is very important to work with experienced agents who will advise you accordingly.
In case you want to terminate your plan before maturity, most companies will require you to make contributions successfully up to 36 months for your plan to acquire a surrender value. It is important to find out on the period and percentage before commencement of the plan. This is where I remind you to invest what you feel comfortable with.
There are circumstances which may prevent you or your beneficiaries from receiving the benefits of the plan and they vary from one type of plan to the other (Check with your insurer on the exclusions). They may include: –
- Death from Pre-existing diseases
- Death from pregnancy complications
- Participation in illegal/criminal activities
- War related activities
Other cases where benefits maybe denied include: –
- Lying about your age when buying the plan ( Your beneficiaries maybe denied benefits in case of your demise)
- Giving incorrect information on the proposal form
How Do I start contributing to an Education Plan?
- Choose a good insurance company, it’s best to work with a good Licensed agent on this.
- Fill an Application Form and provide your KYCs documentation (ID, KRA PIN, Utility form)
- Indicate your Beneficiaries on the application form (Spouse, parents, Children, friend etc.)
- Go for medical check -up (Usually mandatory when the sum assured is high e.g., 5M and above, insurance companies will cater for the expenses)
- Make the first payment and provide details on the method of future contribution
Have you taken an education plan or are you planning on taking one?