When I was admitted as a college freshman in U.P., my farmer parents were not financially prepared to support my education. They don’t have any savings or any plan at all.
I needed to stay in my uncle’s house so that we don’t need to pay for a boarding house. I practically applied to all available scholarship programs to get tuition fee discounts and allowance.
I worked as a part time writer to have money for daily expenses and school projects. My parents needed to borrow money to help me with my expenses. They were buried in debt which gave them sleepless nights on how to pay them.
We didn’t have enough money for my education but with God’s grace I finished my college education despite all the pain and sacrifices we experienced. When I finished college, it was my obligation to send my 3 siblings to college.
I was not able to save because most of my income went to their education. Despite these sacrifices, I did not complain because God blessed me with lucrative jobs and opportunities along the way.
With all these experiences, I realized how important it is to prepare for the college education of my future children. I don’t want to burden them financially when they enter college. I want them to focus in their studies without the distraction of financial difficulties.
When I started this website, I received many emails from parents who have children with ages 13-17 asking for college proposals. They think that purchasing a cheap college plan will pay the tuition fees of their children worth hundreds of thousands and even millions.
They know that college is expensive and they want an easy solution but there is no easy solution or a short cut. College planning should start as early as your child is born into this world.
Time (in years) is needed for money to accumulate and grow. One to 5 years of preparation is simply not enough, unless you have a lot of money to invest in a high earning investment.
Parents should stick to a financial plan to save money for their children’s education. There is simply no short cut or easy solution for college planning. You may need the services of a knowledgeable financial advisor to plan for your child’s college education.
The Shocking Cost of College Education
Sadly, many educational institutions in the Philippines are run for profit today. To earn profit and to catch up with the increasing cost of maintaining an educational institution (salary, utilities, etc), college institutions are forced to increase tuition fees every year at a rate of 10-15%.
Unfortunately, schools have the freedom to do these changes and even the government is futile to stop them. Let us face the fact that education is a big business in the Philippines and it will continue this way in the coming years.
Let us perform a computation, how much is college education right now and how much it will be in the future.
100,000 pesos per year tuition fee per year (2 semesters)
50,000 pesos per year for allowances
150,000 pesos per year
X 4 years
600,000 pesos for 4-year college education (conservative estimate as there are other expenses not included in the computation; more expensive in major colleges and universities)
How Much is 600,000 pesos after 15 years, when your child will start college:
Assuming 10% annual increase in tuition fees and 4% inflation rate applied to allowances, 600,000 pesos will be 2.077 Million in the future. Meaning, if it cost 600,000 pesos to earn a 4-year college diploma currently, 17 years from now, it will cost estimated 2 million pesos to earn the same college diploma. Two million pesos is very conservative as there are many unexpected expenses in college. Shocking isn’t it? If you have 2 children, you will need 4 million pesos.
Below is the estimated cost of college education of top universities in the Philippines from 2033 to 2037 (Estimated Total Cost of 4-Year College Education).
- University of the Philippines (UP) – about Php3.55 million for four years
- Ateneo De Manila University (ADMU) – about Php7.96 million for four years
- De La Salle University (DLSU) – about Php9.7 million for four years
- University of Santo Tomas (UST) – about Php3.96 million for four years
- San Beda College – about Php5.64 million for four years
- University of the East (UE) – about Php4.2 million for four years
- MAPUA – about Php 7.2 million for four years
The question now is will you be able to shell out this huge amount of money in the future? Loans again? Be buried in debt? Pressure your children to get scholarship or financial assistance? Borrow from your relatives? Bahala na atiitude? Save yourself from future financial headache by saving and investing now!
There are many financial products in the market that will help you save and grow your money. Saving in the bank is not the wise thing to do as its value is eaten by inflation (a general increase in prices and fall in the purchasing value of money). The interest rate given by the bank is less than 1% which cannot catch up with the average 3-6% inflation rate. Your money in the bank is losing less than 5% of its value every year. There are financial instruments that can provide more than 10% return every year, better than bank deposit products.
SOLUTION: 10 Year To Pay VUL Plan
Variable Universal Life or VUL insurance is an investment-linked life insurance product. This particular insurance policy provides life insurance coverage for parents and allows the accumulation of cash (through time) invested in a mutual fund that generates better earnings than what banks can provide. The investment can be withdrawn in the future to pay college tuition and miscellaneous fees and even daily school expenses. The insurance protection protects the family in the event that the parents (payers) die early. Let us dissect this bestselling product and learn its many benefits.
THE INSURANCE COMPONENT OF VUL Plan
Life insurance is very important in educational/college planning. While parents have the time and the capacity to earn and save money until their kids enter college, they don’t have the ability to defy death.
Death is inevitable, it may happen anytime. It would be unfortunate to die in this world with your kids so young and your spouse financially unprepared.
Life insurance is the fastest and cheapest way to produce wealth after your death. It would take years to accumulate wealth to pass on with the next generation but a life insurance policy automatically generates wealth after death.
How many years you need to save 1 Million pesos? For less than 1,000 pesos per month, you can get up to 1 Million pesos of insurance coverage from a reputable insurance company.
Dying is expensive with medical expenses, funeral cost and taxes piling up. Worst, if you will leave your family with debt/loans. Why not get a life insurance policy to pay medical expenses, funeral cost, debt and taxes? Anything left from the life insurance proceeds can be used by your family to fund your kids’ education and for home expenses.
Ideal insurance coverage is 10 years of your family’s annual expenses. So if your family’s annual expenses are approximately 200,000 pesos, your ideal insurance coverage is 2 Million pesos.
THE INVESTMENT COMPONENT OF VUL Plan
The VUL plan has a savings/investment feature. Every time you pay your regular premium, a portion of your payment will be invested in a mutual fund. The mutual fund is a collection of money (pooled money) invested by many plan holders (also called policy holders). It is managed by expert investment managers (hired by the insurance company) tasked with the goal of making profit for our money.
The fund managers primarily invest the money in the Philippine Stock Market, where the biggest and profitable companies are publicly listed. They also invest to the Philippine government by buying treasury notes, bills and bonds.
With the continuous growth of the companies listed in the Philippine Stock Market and with the economic development of the Philippines, our investment with the insurance company will eventually grow through time. Having a VUL plan let you ride the booming economy of the Philippines, the new tiger economy of Asia.
For 10 years, your money in VUL plan will accumulate and grow until such time that your child will be needing it for college. In the future, you will not worry where to get money for your child’s tuition fees, miscellaneous fees and daily baon.
VUL PLAN: LIFE INSURANCE + INVESTMENT FOR EDUCATION
To understand VUL plan, I created a sample proposal and summarized it below:
With 1 Year Old Child
Face Amount: 500,000 pesos – this is the death benefit
Annual Premium: 30,000 pesos
Semiannual Premium: 15,000 pesos
Quarterly: 7500 pesos
Monthly: 2500 pesos
Daily: 83 pesos
Number of years to pay: 10 Years*
Total Payment for 10 Years: 300,000 pesos
LIFE INSURANCE BENEFITS
Death Benefit: My family will receive 200% of the face amount or 1 Million pesos upon my death due to sickness, accident, murder and other causes. Even if I only paid the first premium and I died, my family will receive 1 Million pesos. The money can pay medical bills, loans, taxes, home expenses and can also finance the education of my child. Any accumulated investment/cash in the plan will also be given to my family after my death. 1 Million may not be so big but it will surely help my young family that I will leave into this world. Dying with nothing to leave to my family is really a bad idea.
Accidental Death, Dismemberment and Disablement Benefit (ADDD): On top of the 1 Million death benefit, my family will receive additional 500,000 pesos if my death is due to accidental death for a total of 1.5 Million death benefit plus any accumulated investment. In case of accidental dismemberment due to accident, I will receive 500,000 pesos. Accidental dismemberment includes loss of sight, limbs, fingers, hearing, etc. Any particular sense or limb lost has corresponding amount that can be claimed from the life insurance company. If I become disabled due to accident, I will receive 50,000 pesos per year for 10 years for a total of 500,000 pesos.
Total Disability Benefit (TDB): Premium payment will be waived if I become totally disabled due to accident. Meaning, the insurance company will shoulder the premium if I become disabled due to accident.
INVESTMENT FOR COLLEGE EDUCATION
Every time I pay, my VUL plan, part of the payment will be invested in a mutual fund of my choice. The investment will accumulate and grow over time. The rate of return of the investment can beat what regular bank deposits provide. My investment will be managed by expert investment managers of the insurance company.
The insurance company has currently 7 mutual funds to choose from but my favorites are the Equity Fund and the Index Fund. The other mutual funds include Balanced Fund, Bond Fund, MyFuture Fund, Money Market Fund, Growth Plus Fund and Captains Fund.*
My one-year-old child is expected to attend college after 17 years. How much is the college fund by then? Assuming 10% average annual compounded return, the projected investment value or fund value after 17 years is 658,702 pesos or double my total 10-year payment of 300,000 pesos. I doubt the bank can provide better return than this. By the time my child reach college, I will withdraw the money to pay tuition and miscellaneous fees.
I know you’ll say 600K would not be enough for a 4-year college degree. I agree, that is why I need to compute the projected college cost by then taking into account the annual increase in tuition fees as well as the effect of inflation. A financial advisor may help you compute the target amount to save regularly to target the future college fund of your child. Financial advisors have this program called Financial Needs Analysis for college education. It is free service by licensed financial advisors which you could avail.
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