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How to save up for a child’s education and not go broke

Each parent thinks about the future of his child every day, what awaits him ahead. Some of parents are already planning to give their children excellent education, the second are dreaming of financial support in case of marriage, as the desired day is just around the corner, the third want to provide financial assistance to the child for the first independent stage in life.
How to save up for a child’s education and not go broke

According to the study conducted by Freedom Finance Life, the cost of schooling in Kazakhstani universities is growing by 10% each year. For example, if one undergraduate academic year costs 600 thousand tenge today, five years from now it will be increased to 900 thousand. Thus, the parents need to save not 2.4 million tenge for all four years of study, but 3.6 million. This is very important if you are planning the future of your child and want to give him a good higher education.

To pay such an amount for schooling at once is a difficult task for many Kazakhstani families. Therefore, these expenses must be planned in advance, preferably a few years before the child’s high school graduation.

There are several ways for parents to accumulate the required amount for education: save money “under the pillow”, open a bank deposit, open a bank deposit under the state program, take a loan for education or conclude an endowment contract.

Keeping money “under the pillow” is the least secure way, as inflation is gradually depreciating it. Besides, the parents will be tempted to spend what they have saved for other purposes,” says Azamat Yerdessov, the Board Chairman of JSC Freedom Finance Life.

Bank deposits are much safer and more effective, as the interest on them is higher than official inflation. Besides, the funds accumulated on the deposit are partially protected by the Kazakhstan Deposit Guarantee Fund. There is a drawback, however, if during the saving period an accident occurs or one of the parents loses the opportunity to make lodgement, there will be a risk that the required amount will not be accumulated.

“As for universal life insurance programs, they combine the functions of deposits and life insurance programs. You can save money for schooling and get insured for the entire saving period under them, - says the head of Freedom Finance Life. - Therefore, if an insured event occurs with one of the parents, the life insurance company will pay the university the amount that the parents should have accumulated (but have not managed). Thus, the child has the opportunity to get the diploma.”

Life insurance companies offer various savings conditions for parents.

Nomad Life recommends, first of all, to choose the saving program period and amount that needs to be accumulated. For example, the savings will be formed for a child who is now three years old. Parents plan education at a Kazakh university. Approximately 5 million tenge are needed for that. The program term should be 15 years, as the child will begin to receive higher education in 15 years. The father of the child will be legally insured, as he is a family breadwinner.

“The size of the annual insurance premium will be 292,157 tenge. The father’s life will be insured for 5 million tenge starting from the first day of the insurance policy that participates in profit. This means that starting from the third year of the program, the insurance coverage will start to grow due to insurance dividends distributed by the LIC,” explains Ramai Kurbangaliyev, the sales and regional development department director of LIC Nomad Life.

The speaker emphasizes that the amount of dividends depends on the results of the LIC’s investment activity. Assuming that dividends will be distributed at the rate of 7% per annum in average, the insurance amount will increase to 7.3 million tenge by the end of the program. Due to participation in profits, the negative effect that will develop due to inflationary processes will be blocked, because the cost of training will also increase over these 15 years. “If the father passes, 5 million tenge plus those dividends that will be formed by the insurance event will be paid immediately. The client will pay 4,382,355 tenge over the entire insurance period. The amount payable with dividends is almost 3 million more than the amount of insurance premiums. Besides, the father’s life is insured the entire program term, and the risk that the child will not have money due to father’s decease is blocked by the insurance policy,” the source says.

If the father did not take care of paying for the education in advance, most likely the child would receive it at the expense of borrowed funds, and then the family would have to pay the bank interest for the loan.

JSC Halyk-Life offers the Bolashak-Life program to such clients. The insurance program includes a basic accumulation, life insurance program and 10 various additional options. “An important feature of the program is that both parents can be included in the insurance contract. The insurance benefits are the generation of savings with guaranteed income of up to 5% by the child’s majority, opportunity to participate in the Company's profit with the distribution of insurance dividends starting from the third year of insurance (increase in the accumulated amount),” says the Head of Marketing and Development Department of JSC Halyk–life, Natalya Ananyeva.

As a rule, if a parent wants to save up for child’s education, then the insurance term is synchronized with the number of years through which the child will enter the university. If the child at the time of the contract conclusion is 10 years old and will go to college when he is 18, the insurance term may be 8 years. For example, a client, 28-year old woman, enters into a universal life insurance contract for a period of 12 years with a monthly insurance premium payment of 10,000 tenge. She excludes additional coverage. “The insurance amount the client receives at the end of the insurance period will be 1 608 000 tenge.

If we take the same example, but the client is a 28-year old man, then the insurance coverage will amount to 1 601 000 tenge. In case a client intends to include additional coverage, death from an accident, then the insurance amount for a woman will be 1,561,000 tenge, for man - 1,555,000 tenge,” says the representative of Halyk-Life.

LIC Freedom Finance Life has the Freedom Education program; it is designed for the effective and safe accumulation of money for children’s education. You need to choose a university (local or foreign), conclude an agreement with the company and start paying fees to participate in the program.

For example, a child is graduating from school in 5 years. “By that time the education cost will be 3,600,000 tenge for four years of undergraduate studies. Based on the assumption that a 30-year-old man (father) will be saving and a contract will be with no additional cover, the monthly contribution will be 50 009 tenge, which is a little more than a deposit (42,500 tenge), but parents and their child are provided with reliable insurance protection for all 5 years,” says the head of the company.

The amount payable with dividends is almost 3 million tenge higher than the amount of insurance premiums.

Child’s education is one of the priority life goals, therefore aggressive tools with a high level of risk of losses should be avoided, experts say.

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