Planning for your child’s education is one of the most meaningful financial goals a parent can undertake. With the rising cost of tuition both locally and abroad, many parents are looking for smart, stable, and flexible ways to grow their savings. One increasingly popular method is to use insurance—not just for protection, but also as a savings vehicle. But how does that work, and is it the right option for your family?

In this content, we explore how certain types of insurance policies can help you build an education fund for your child, their pros and cons, and what you should consider before committing.

Understanding Education Planning Through Insurance

Traditionally, insurance is seen as a tool to protect against unforeseen life events—critical illness, disability, or death. However, some life insurance products are designed with a dual function: to provide protection and to help you save over time.

This is where endowment policies and investment-linked insurance plans (ILPs) come in. These hybrid plans allow policyholders to pay regular premiums, part of which go towards insurance coverage, while the rest is either invested or saved to build a lump sum over time.

Types of Insurance Plans Suitable for Education Savings

1. Endowment Plans

Endowment plans are savings-focused insurance policies that pay out a lump sum after a specific term or on a specific maturity date. These are ideal if you know when your child will begin university (e.g. age 18 or 21). The maturity payout can be used to fund tuition fees, living expenses, or even overseas education.

Pros:

• Guaranteed returns (in many cases)
• Simple to understand
• Low-risk option for conservative savers

Cons:

• Lower returns compared to market-linked investments
• Limited flexibility if you want to increase contributions

2. Investment-Linked Insurance Plans (ILPs)

ILPs combine life insurance with investment in unit trusts. You pay premiums that are split between coverage and investment. Over time, the investment portion can grow based on market performance, giving you the potential for higher returns than a traditional savings plan.

Pros:

• Potential for higher returns
• Flexibility to adjust coverage and premium amounts
• Transparent tracking of fund performance

Cons:

• Not guaranteed—returns depend on market volatility
• Fees may reduce overall growth

Benefits of Using Insurance to Fund Education

1. Built-In Protection

One major advantage of using an insurance-based savings plan is that it includes life coverage. In the event of the policyholder’s untimely death or total permanent disability, many policies waive future premiums while keeping the savings plan active, ensuring your child’s education goals stay on track.

2. Disciplined Saving

Education-focused insurance plans enforce regular premium payments, which helps you stay committed to long-term saving. This structured discipline is often missing when relying purely on ad-hoc savings.

3. Maturity Payouts Align with Education Milestones

Insurance plans can be customised to mature around the time your child enters university. Some plans even offer staged payouts aligned with tuition fees and other academic needs, reducing the financial stress on parents during these critical years.

What to Consider Before Choosing an Insurance Plan for Education

1. Time Horizon

When do you expect your child to need the funds? Most endowment plans require a medium- to long-term commitment (10–20 years). Starting early gives you more time to accumulate funds and manage risks.

2. Risk Appetite

If you prefer guaranteed returns and are risk-averse, a traditional endowment plan may suit you better. If you’re comfortable with market fluctuations and want potentially higher growth, ILPs offer more upside—though with corresponding risks.

3. Flexibility

Look into whether the plan allows you to increase premiums, make top-up contributions, or change beneficiaries. Some policies are more flexible than others and can adapt to changing circumstances.

4. Costs and Fees

Be aware of any policy charges, fund management fees (for ILPs), and surrender penalties. These can affect your returns and the final education fund you’re hoping to build.

How Much Should You Save?

A good rule of thumb is to estimate your target education fund based on:

• Local vs overseas education costs
• Duration of study (typically 3 to 4 years for undergraduate degrees)
• Inflation (education costs can increase by 5%–6% annually)

Once you have a figure, work backward to determine the monthly or yearly contribution needed based on your insurance policy’s projected maturity value.

Realistic Scenario

Let’s say you want to accumulate RM100,000 in 15 years for your child’s local university education. You could opt for an insurance with a savings plan that guarantees a maturity value close to that amount, while providing RM200,000 in life coverage. In case of a life event, your child’s education funding remains protected. And if you’re open to market exposure, an ILP could help you reach that goal faster, albeit with some risks.

Alternatives and Complements

While insurance is a strong foundational option, many parents also complement it with:

• Education savings accounts (SSPN Prime or Plus in Malaysia)
• Unit trust investments
• Fixed deposits
• EPF withdrawals (if eligible)

These options can help diversify your savings and spread risk.

Bottom Line

Yes, you can use insurance to save for your child’s education—but it’s not a one-size-fits-all solution. Insurance-based education plans offer a unique combination of protection and savings discipline, which is valuable for long-term goals. However, it’s essential to compare products, understand the fine print, and align the plan with your financial capacity and aspirations for your child.

If you’re unsure where to start, consider speaking to a licensed financial advisor to help you select the best plan tailored to your needs.