It was just last year when a report came out that the GSIS or the Government Service Insurance System was having problems with the release of Educational Funds and its members were openly complaining about this predicament. If a government agency is having financial problems with such funds, what more a private company?
Take note that even companies as large as Sun Life had to halt offering its Pre-need Educational Plans due to the large amount of the trust fund required by the Securities and Exchange Commission. Do not fret though since pre-need educational plans previously sold by Sun Life are still being enforced.
Who could ever forget the problems of CAP or the College Assurance Plan as well as the Yuchenco Group’s Pacific Plans? The terrible nightmare of paying a large amount of money and waiting a decade until your child enters college only to find out that the company has gone bankrupt is enough to haunt anyone forever.
This could be the reason why personal finance mentor, Randell Tiongson, refuse to purchase a Pre-Need Educational Plan for his kids. Essentially, his three major reasons are unfair provisions in the policy, the high-risk involved and the terrible returns on his investment. However, would anyone want to have their cash stashed in banks or “alkansyas” until your child reaches college? Reportedly, there are 300 universities and colleges which will have a hike of 3%-12% in tuition.
What if you discover that you can create your very own Educational Fund for your kids? Do you want to learn how? What would you do if you can copy educational products which pre-need companies were providing but with relatively less risk?
This is a Do-It-Yourself Educational Plan. First, do look at the features of a standard Educational Plan. It consists of the following elements:
1) The money you pay which will be utilized for the tuition fees for 4 to 5 years of college study
2) The child is insured for a particular amount in case of death
3) Waived payment if in case the one paying the educational plan suffers total disability
4) The plan is considered paid if in case a payor dies
5) The payment period is 5 to 10 years.
What are the options one could do to be able to come up with almost P4 million by the time a child reaches college? Here are a few solutions:
Save
If you could find a commercial bank that is stable and offers you an interest of 1% annually, you need to save P17,7000 each month for sixteen years. As a result, you will have P3.7 million by the time your child is in college. Your contribution will total to P3.45 million and the interest your money accumulates is P303,826.
Would this solve your problem? Yes it will, assuming that nothing untoward occurs to the payor for the next 16 years and that he or she puts money each month regularly. But what would happen if death enters the picture after two years? The savings will have a total of P426,321. You could also opt to acquire a type of savings which has automatic insurance.
Mutual Funds Investment
In order to acquire P3.7 million in sixteen years, do invest in mutual funds. Do note its rate of return offers no guarantee. A lot of Philippine mutual funds were offering 9%-17% as based on their five-year returns. If for example the fifteen-year return is merely at 8%, parents have to invest P8,304 per month for sixteen years in order to attain P3.7 million. Also, a savings period of 10 years and waiting an additional of 5 years more of putting in P10,650 each month results to a total of P1.22 million. Meanwhile, a savings period of 7 years and waiting 8 more years whilst putting in P13,724 monthly gives a total of P1.10 million. A 5 year savings period and a waiting period of 10 years while putting on P17,884 each month totals P1.02 million. A 3-year savings period and a waiting period of 12 years at P27,708 each month gives a total of P957,000.
Will the problem be solved? Partly it would be solved however it offers no protection or safety net if ever a worst case scenario occurs. Therefore, the problem is not completely solved. By acquiring a separate insurance or specifically a term insurance, the issue of protection is taken cared of. Through this method, if the payor passes away, the fund is instantly available. For a term insurance, a coverage of P3.7 million is necessary so if in case death occurs, the coverage is equal to the amount necessary for the P3.7 million education.
Parents need to pay P17,310 each year with the fee increasing to P200-P400 in fifteen years. Total insurance for fifteen years is at P263,070. Do note that the insurance could be decreased every fifth year since the fund is also increasing.
Source: Educational Plan Options in the Philippines – A Mother’s Dillema
