Save for Their Fu­ture

An en­dow­ment plan is a good way to squir­rel away money for your child’s fu­ture needs. SASHA GON­ZA­LES asks the ex­perts what to look out for.

Simply Her (Singapore) - - Kids -

You know how im­por­tant it is to save for your kids’ ter­tiary ed­u­ca­tion. Ex­perts say ed­u­ca­tion costs have been in­creas­ing at the rate of about six per cent a year, so it’s cru­cial to start now. An en­dow­ment plan is a great place to start – it’s an insurance pol­icy that pro­vides sys­tem­atic sav­ings for a spe­cific fu­ture goal. Here are some things to note:

Look at the pol­icy term

Tim­ing is im­por­tant as you want the plan to pay out the money when it’s needed. Insurance firms of­fer flex­i­bil­ity when it comes to the pol­icy term (the length of time be­fore you get the cash pay­out) – any­where from 10 to 30 years, so you can de­cide when you want the plan to ma­ture.

If your child is five years old now and you think she will en­ter univer­sity at age 19, you may want to pur­chase a 14year plan. Note, how­ever, that the shorter the pol­icy term, the lower the re­turns – so if you go with a 10-year plan, your needs may not be fully met.

In this case, you may wish to get a sep­a­rate monthly in­vest­ment plan that will give higher re­turns, which you can then use to sup­ple­ment the en­dow­ment plan.

Work out how much you need to save ev­ery month

Com­pared with your mort­gage and re­tire­ment funds, your child’s ed­u­ca­tion is a short-term goal. To fig­ure out how much you need to save, look at what the cost is now, add in­fla­tion, then work back­wards to ar­rive at how much you have to put aside, says Al­fred Chia, chief ex­ec­u­tive of­fi­cer of fi­nan­cial ad­vi­sory firm Sing-cap­i­tal.

A safe in­fla­tion rate to make your cal­cu­la­tions with is 5 per cent. So, if the cost of study­ing for a univer­sity de­gree now is $50,000, and you have 15 years to save, at a 5 per cent in­fla­tion rate, you’ll need $103,946. If you can in­vest in a plan that pro­vides a 5 per cent re­turn, you will need to save $382 a month for 15 years.

De­cide if you want a plan with ad­di­tional ben­e­fits

Many plans of­fer other ben­e­fits and op­tional fea­tures, such as a rider to waive fu­ture premi­ums if you’re di­ag­nosed with a crit­i­cal ill­ness, or a crit­i­cal ill­ness cover for you and your child, Al­fred points out. But while th­ese are good to have, they might com­pro­mise on re­turns.

OUR EX­PERTS:

Daniel Tan, cer­ti­fied fi­nan­cial plan­ner Al­fred Chia, chief ex­ec­u­tive of­fi­cer of Singcap­i­tal, a fi­nan­cial ad­vi­sory firm

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