When saving for your children studies, do you go the Student Policy route or the Voluntary Investment (Unit Trusts) route?
A Voluntary Investment offers you more flexibility and the costs involved are a lot lower and more transparent. This investment also allows more liquidity than a Student Policy.
Student policies are an Endowment Policy with fixed terms, fixed cost structure and a fixed contribution pattern. If there is any change in the contribution of the investment or you want the suspend your contributions for a while, a penalty fee will be applicable. This will be subtracted from the current fund value.
The benefit of this policy, lies in the fact that you can add risk cover to it. For example, if the premium payer becomes disable or passes away the life insurance company will pay the rest of the premiums until the policy come to term. This means a portion of the premium will be used for the risk cover and the remainder will be invested.
This however leaves us with another problem, the portion to be invested can be difficult to determine due to the fact that the risk cover portion changes with the clients age. I would advise to rather factor in your children’s education in your overall risk planning.
Units Trusts has no fixed amount payable per month. There will also be no effect on your investments fund value if you change your contribution or suspend your monthly contribution. This option also allows you to make withdrawals at any time, but this means that you have to be disciplined. But take note: With great flexibility, comes great responsibility…..