Planning for your Children’s Education

In a recent Businesstech article, Old Mutual group’s data shows that if your child starts Grade R in 2020, with education inflation of 9%, you can expect to pay around R1.6 million for their public schooling up to matric and a three-year university qualification. By comparison, if you choose private schools and university, these costs double to R3.7 million.

Although the 2021 Education inflation recorded its lowest annual rate of 4.1% in thirty years, the costs are still outpacing inflation year on year. High education costs can put pressure on parents’ budget, and the death of a parent just burdens the surviving parent or legal guardian further.

In the past parents saved for their children’s tertiary education in restrictive Education policies, and many lost those savings because their children elected not to study at a registered institution.

The modern options are less limiting, and provide parents with the following choices:

Education insurance at the death of a parent

This is financial protection against the high costs of education in the event of the death or disability of a parent.

Type 1

• Education benefits made available as an add-on benefit to the death and/or disability benefit of the parent’s policy. Typically, these are indemnity policies which will pay the children’s actual school fees up to a six-year tertiary degree at the same fees the parent paid just before passing on. These fees are paid directly to the educational institution annually in advance. The different providers have different policy rules. It is important to familiarise yourself with the policy.
• These types of policies are often included in Group life policies at employer level. You must therefore take cognisance that this benefit will no longer be available when you terminate service with your employer.

Type 2

• A life cover policy may be purchased in your personal capacity for each child’s study needs in the event of one or both parents’ death. This policy will then pay a lumpsum to the child, guardian, or beneficiary fund.

A financial advisor will be able to assist you to determine the amount of cover required to meet your children’s educational needs, and the best way to set up the payment of the policy proceeds (cash payment to surviving parent or guardian, trust fund etc.)

Education investment or savings plan

This is investment planning to fund for tertiary or any other education needs of your children. It will be in the form of a monthly contribution made towards an investment vehicle (e.g. unit trusts, bank account, tax-free savings plan).

You will need guidance from your financial advisor to assist you with the best option for your specific circumstances, as not all the investment products are equal. You need to consider aspects like:

• Product fees,
• Tax implications,
• Investment options and targeted returns,
• Amount available to invest or save,
• Who should be the owner of the policy,
• Beneficiary nomination,
• Access to funds,
• Rules of the plan or policy, to name a few aspects.

To find out more, contact your PSG Wealth R21 account manager and/or financial adviser.

R21 Employee Benefits https://www.psg.co.za/r21employeebenefitsirene
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