What’s the point of having an Education Plan?
Out of the blue an existing client of mine called me and told me he has a 6 months old baby boy. I first congratulated him and told him how surprise I was. I did not know about his wedding and obviously I did not know that he had become a father. Some may say what kind of agent I am for not keeping in touch and in the know of what has happened to my clients’ life. Ah! ..Well… all I can say is I am this kind of agent. Only know when people want to let me know kind of agent. In fact most people appreciate my stance. I am no busy body. I tend to keep a certain degree of distance when comes to people’s private life. Even if they told me their private things, I tend to forget. Who knows he might have had a ’shot gun’ marriage, and still unable to be open enough to admit it.
Anyway the reason he called me was to ask me to give him an education plan. So I went to his apartment with my lap top. The moment I took out my tools of trade, he was surprise by the sight of it. He told me “I just want an education plan, and you don’t have to be so serious to bring a lap top to show me”. I said ” I am a tailor, I tailor-make financial plans and I am no hypermarket ..he….he..”
Through questioning, he found out himself that medical insurance to him is not a priority as his employer has already given a very good cover for his family. Though he sees the necessity in the future but it was not his priority at the moment. He also states that there is no point getting a death/disability insurance cover on his son and thinks it is preposterous to do so. He believes he is more important as he is the breadwinner in the family. He also thinks education premium relief of Rm3,000 is too little to excite him, as his tax bracket of about 20% and the annual RM600 discount on the RM3,000 premium is no big deal, as it is one off relief. He prefers unit trusts, especially those capital guaranteed fund, as over the 15-20 years, the funds could easily make back the one off 20%.
I asked him, since he does not think he needs most of the benefits from an education plan, why would he ask me to do an education plan to show him? He said everybody buy one for their children, so I wanted to get one also.
He told me, actually he thinks he should upgrade his own life coverage. He finally settled with a wholelife non-participating policy for himself. A wholelife non-par plan is a plan that covers up to 99 years old and it is relatively much cheaper in terms of premium as compared to a participating wholelife policy. The idea is that the policyholder believe that he has better avenue to invest the money than the insurance company. Therefore the premium saved will be invested elsewhere. Wholelife non-par has a big advantage over term policy, because term policy coverage stops at a certain age and no cash value upon expiry of the term. The answer you have for the question ” will I still need insurance coverage after age 60, will I still have the ability to pay for the premium” will determine whether wholelife par, non-par or term is more suitable.
I hope I have sent out the correct message, that is , every plan has its usefulness. It is the matching of the client’s intention, profile and circumstances that counts. A typical education plan helps to ensure an education fund is ready when the child reaches the college-entry age. There are of course certain costs associating with an education plan, they are there to ensure the benefits of covering the payor’s ability to continuously save the money, to provide a systematic and discipline way of saving money, to protect the money saved from medical emergency expenses etc. Past decades , many children have gone to college/university to realise their dreams, certainly it has proven its usefulness, time and time again.
On the last note, if you can save money, you would already have save some by now. Else, better get an education or a savings plan from an insurance company.
June 8th, 2008 at 2:33 pm
I am curious why your client think the guaranteed RM300 relief that save RM600p.a. is a one off relief?
When he earns more and being taxed more down the road, the return is even higher. No risk, no hassle, no worry.
Probably only 5% of the population are able to reap over 20% return p.a. consistently from their investment. Why 5%? Because for those who can pull that trick year after year, he will be financially independence very soon.
June 8th, 2008 at 4:19 pm
It is a one off relief because the relief is given on the premium you paid into the fund each year and not the on the cumulative amount of money invested into the fund.
What my client meant was, if he were to put into unit trust, he could easility make 20% over 15-20 years. In fact he could recover the 20% in less than 5 years if the return is 4% per annum. As the past performance of even bond funds, the return has been more than 7% per annum for the past 5 years. Education plan would not be appropriate as he will be paying for the insurance and administration charges, which in his case, he found them unnecessary.