Can critical illness insurance fund education ?
One popular use of critical illness insurance policies is in connection with private education. The rise in school fees in recent years has marched along with inflation, and few parents can now afford fees for more than one child out of current income. Increasingly, therefore, advance provision through the use of critical illness insurance is made to ensure that funds will be available during the school years. The normal way is for the parents to take out a critical illness insurance policy or series of policies on their own life or lives, taking loans against the surrender value for any fees required in the first 10 years and meeting fees thereafter from the successive maturity values of a series of small policies.
Savings can then be made on very long period for accumulation. The shorter this deferred period, the lower the saving will be, but even over a few years it may still be worthwhile. Making useful provision over a shorter period also necessarily involves a larger annual investment. Over very short periods such as one to four years, critical illness insurance can be of little help, though those with large incomes may still derive some benefit from investing for fees payable later in the child’s life.
Even if private education is not being considered, thought should be given to the costs of a course at university. The parental contribution required from those with more than modest incomes is now substantial. The assessed maintenance contribution can impose a large demand on the parents’ net income. Advance provision through critical illness insurance policies can reduce this burden.
Often a child’s grandparents may be major contributors to a school fee plan, and here capital transfer tax can be a problem. They can use it to fund a series of critical illness insurance policies. If the period until schooling begins is shorter, and critical illness insurance policies cannot be used, then the parents should avoid investing any of their own money on the child’s behalf. Critical illness insurance can be useful for education.
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