Rattibha

Education Insurance Policies are one of the worst places to put your money into.
Whether you are looking to save money to educate your children, benefit from the insurance or both.
Here's why and what you should opt for instead:

An education policy is a life insurance product specially designed as a savings tool to provide an amount of money for your child's education.
It provides a payout on the death/disability of a parent while the child is in school or matures when the child is set to go to school.

How Insurance Agents trick you into buying Education Policies:
1. What will happen to your kids when you die?
They will instill fear in you that when you die, your kids may not be able to continue with their education.

While that is a worthy risk to worry about, there are better plans to cover your loved ones against the risk of your death, disability or chronic illness.
That's the purpose of insurance.
And when Insurance is taken independently from an education policy, it becomes cheaper.

2. They Promise you huge compensation.
The possibility of getting a few millions in compensation at the end of 15-20 yrs is staggering for most people.
This tricks you to thinking that education policies are good for your money while you are missing out on better opportunities.

It's not huge compensation.
You will just get your money back with very little interest.
For example;
Ochieng has an education policy where he contributes Sh3750 per month for 10 years. His sum assured is sh 316K with bonuses of Sh9500 per yr for 10 yrs.

These bonuses of Sh 63K are paid in years 3 & 6 respectively.
If you do the math, he receives the same money as compensation as what he contributed.
That is if he lives to the maturity of the policy.

3. Education cost is high.
Insurance agents will instill fear in you that you may not be able to afford paying for your kids education.
Even if education cost is high, education policies do a poor job in helping you save up for the education of your children.

Why are Education Insurance Polices Poor Products?
1. They mix Insurance, Savings & Investments in one basket.
As a result, you get high premiums, low returns & not the best plan to save for your kids' education.
Wealth creation and wealth protection are two different things.

If you want wealth protection, go for Life Insurance.
Here, the goal is to protect you & and your loved ones
If you want to create wealth that will be able to afford your child's education, invest in low risk, income generating assets like MMFs, T-bonds, ETFs

2. They lack flexibility
In case you missed paying premiums for sometime or cancelled the policy before maturity, it comes with heavy penalties.
Most people are in and out of jobs. It would be wise to have something more flexible just in case you were unable to pay premiums

3. They promise high returns which are actually low returns.
If you do the math, you will realize that what you are getting back is just the amount you saved with little interest.
Yet they call it *saving for your children's education* but still give poorer returns than banks'

I know the purpose of Insurance isn't to optimize on high returns,
but why do insurance agents sell education policies like investment products?
If most Kenyans were financially literate, no one would subscribe to such products.

What should replace Education Insurance Policies?
1. Get Life Insurance
If your biggest worry is how your kids will fare on in case your died or had chronic illness/disability, get an Life Insurance Cover.
Insurance on its own is cheaper than education policies

2. Get Medical Cover. The most important insurance cover is health Insurance.
People neglect paying for their NHIF until they get ill.
I know NHIF has a lot of issues, but start with that one and get more cover if you can afford it.

3. To save for your kids' education invest in a low risk portfolio.
You can design a portfolio different from your main one whose main goal is to save for your child's education.
It should be low risk as you don't want to lose money to educate your kids.

Consider asset classes like MMFs, Bonds, ETFs and other asset classes that you are comfortable with.
You want something that is flexible and that gives you decent returns in the long run.
This will help you take advantage of the compound interest that accrues.

Education Insurance Policies are for the financial illiterate & people who have no savings discipline.
If you are wise enough to do the math and build your own portfolio to support your kids,
You will realize that education policies are very poor products to put your money in.

That's it on Education Insurance Policies.
I know this may get me into trouble for sharing the truth.
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And if you would like to read more about Education Insurance Policies;
I wrote this amazing article:
gichukikahome.com