Education is becoming increasingly expensive, even for those who don’t want to go to college. High school grads who aren’t pursuing further education can still get a job and support themselves with some training in a vocational field.
But if you are the child of someone planning on going back to school, or you know that you want to study further yourself at some point in your life but just can’t afford it right now, there are education savings programs available to help. Education insurance is one potential strategy to fund educational expenses without impacting your primary savings.
It comes in two main types: Education Savings Plans (ESPs) and Education Endowment policies (ENDOWments). Both have advantages and disadvantages, which we explore here so you can make an informed decision when choosing the right plan for you.
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What is education insurance?
Education insurance is a type of investment that helps you save for future educational expenses. In exchange for your premium payment, the insurance company agrees to pay for a specified portion of your tuition in the future if you need it.
Education insurance can also be referred to as “tuition insurance,” “education bonds,” or “education savings plans.” These terms all refer to the same general concept, but they are not entirely interchangeable.
Education Savings Plans (ESPs)
ESPs are investment plans that allow you to save for future educational expenses. You make regular payments into an account, and the plan has a guaranteed rate of return. If your child uses the money in the account to pursue further education or training, you can also get tax deductions on your contributions.
ESPs allow you to save money for a future expense, plus get tax benefits on top. You can set up an account for yourself or for your child, with the money in the account being held in trust for the child until he or she is ready for higher education. The child will be expected to pay back the money, with interest, once he or she starts school.
Education Endowment policies (ENDOWments)
An ENDOWment is an insurance policy that is purchased for an immediate lump sum payment. When your child is ready for higher education, you can use the money saved from your initial payment to pay for tuition at that time.
ENDOWments do not provide any type of return on your investment, but you get a one-time payment with no ongoing payment requirements. If you need the money, you can cash in the policy and receive it in one big payment. But if you don’t use the money for educational purposes, you will receive a much lower tax benefit than with an ESP.
Which is better for you?
ESPs and ENDOWments both have their benefits and drawbacks, so it is important to understand the details of each type of policy before making a decision. You can use the following checklist to help you decide which policy is best for you and your family.
ENDOWments can be a good choice if you have no expectation of needing to use the funds for educational expenses in the near future. ESPs, on the other hand, are a better choice if you expect to need the funds in the next five years. When considering all of your financial goals, choose the policy that is most likely to help you reach those goals.
Conclusion
Education insurance is a smart way to start saving for future education expenses. The earlier you start, the more time you have to build your savings and enjoy tax benefits on your contributions.
Education insurance can also be a useful strategy for parents looking to help fund their children’s education. ESPs and ENDOWments are two types of education insurance policies that allow you to fund the cost of education.
Both have advantages and disadvantages, so it is important to understand the details of each type of policy before making a decision. ENDOWments can be a good choice if you have no expectation of needing to use the funds for educational expenses in the near future. ESPs, on the other hand, are a better choice if you expect to need the funds in the next five years.