Funding your children education. Most People do it wrong.

November 8, 2014 — Leave a comment

Do you need endowment plan for your children education?

i will reveal to you an alternative of funding your children education in a more optimise way and show you a real case study.

how is this for an opening line?

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I often bump into client ask me to propose them an education plan for their children, but when i ask how much they need- they have no idea.

if they cant even answer this simple question, there are doom to be lure in to deep well of financial plan confusion. Once they get in, it is costly to get out.

to overcome this i have few rules to help you making a sound decision for your children education plan.

 

RULE 1: KNOW YOUR NUMBER!. how much your child need for education. Knowing the first rule is not enough because it only solve the first half of the equation.

 

RULE 2: KNOW YOUR COMPOUND ANNUAL ROI (return on investment). Knowing this two rules will help you better filter our most of the plan proposed by many agents and financial advisors thus avoid being fall into financial pit.

 

 

financial pit

 

RULE 3: ALWAYS THINK PLAN B. The journey is not always smooth. If you go sailing into a big ocean, no matter how good you are as a swimmer, you still need a life jacket.

 

ok enough with the theory. lets get started with a case study because i don’t want to bored you with the theory that sound nice on the book buy cannot be apply in real life.

A client of mine approached me 2 months ago asking me to came out with a education plan for her children.

Client name: Dayang Rosmah. (Single mother)

Age: 36

Annual Income: RM37,000

Son 1: Faizal age 6.

Daughter 1: Dayang Aisyah age 3.

Needs: To provide RM50,000 for each Children when they reach 18 years old to further their study in any local university.

* base on the interview conducted the client only afford to contribute a total of RM400/month for both children education

** Family already have adequate medical coverage.

 

The table below shown Advisor 1 that propose a 20 years endowment plan while Advisor 2 propose an Optimum money management plan.

 

endowment plan vs OMM

As you can see Advisor 2 propose a better education plan base on total return after 18 years.

Most insurance advisor will argue that Endowment plan provide Death coverage for the children.

My point will be, why should any Mother want a life coverage for the children in the first place? are the children the bread winner for the family? NO! you are, you should cover yourself first!

Then some will argue that endowment plan comes with parent waiver should anything happen to the parent, Death etc.. the plan will continue to run and the education fund will grow.

Well this is a great features attached in the plan, but what if i have the mother to cover with RM100K of life at the first day with her existing insurance coverage?

if the parent died at year 5 for example, the RM100K will pay out and put in the Optimize money management account, When the first son reach 18 years old the account would have grow to RM250,000.

 

if you asked me which advisor are you? i will say which financial plan suit you the most. If you want to plan for your children education remember the first three rules.

 

have a great weekend.

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