Sep 23, 2013 - 02:21 PM
By looking at your children’s age now, insurance may not be the most suitable plan for your children. Any kind of investment or saving needs time to accumulate and compound. Time is crucial to accumulate for their education funds now.
Assuming both instruments give you same return. Insurance pay more commission at the beginning stage of the implementation of a plan, it needs longer times to accumulate return. However, the initial cost incurred for unit trust is lesser than insurance at the beginning stage, but it will increase gradually as the management fee is based on the total net asset value. Therefore, unit trust may be a better choice to accumulate more funds for your children.
Generally, unit trust may give better return than an insurance plan provided it is invest on a monthly regular basis, and you shall not stop your monthly investment especially when the market is down. As long as the fundamental of the fund is strong, you should not worry about the unit price.
The criteria to make profit from a unit trust investment is not timing or predicting, but it is discipline! If you do not have the discipline of regular investment, insurance would be a better choice as this is a force saving tool that make you pay for the premium until maturity. Because the surrender value takes time to reach the breakeven point of the total premium paid.
The above suggestion has not taken protection of the payer into consideration. Insurance has a waiver benefit that protect the education fund from being jeopardise due to payer fail to pay premium resulting from death, total permanent disability or critical illness.
If you are using unit trust to fund your children education fund, you are suggested to buy 3 separate term insurance policies at different maturity year until each of your children reach their age of 25. The sum assured should be equivalent to the education fund that you intend to prepare for each of them.