We all have big dreams for our children which are best achieved through a good education. The biggest barrier to these dreams has been higher tuition and school fees, and higher education needs in terms of school uniforms, stationery, and other upkeep material, compared to a time back.
Talk of private tuition costs, for instance, according to a study by Daily Nation published on April 7, 2024, Kenyans were spending billions of shillings to educate their children in private schools due to declining quality of learning in public institutions. The study also revealed that parents in urban areas were most affected by the lack of public schools and therefore turned to the not-so-cheap private institutions. Data by the Kenya National Bureau of Statistics reveals that the cost of private tuition shot by 5.7 percent in January 2024, compared to last year.
An education insurance policy, usually designed to provide long-term financial support towards your child’s education, is undoubtedly the best solution to beating this financial challenge. The first question that comes to mind would be, can I get my money back if I can no longer pay for this type of insurance coverage? Let’s explore this question further.
The surrender value is an amount you receive, should you choose to terminate, or in other words, surrender, an insurance policy coverage early. Life usually doesn’t go as planned, and your termination of the policy may have been understandably due to separate unavoidable commitments. Even at this point, you are still able to gain some financial compensation from your insurer, or at worse, receive part of the money you paid as premiums as the surrender value for the education policy you took.
It is important to know that in the early years of the policy, the surrender value is in most cases lower than the premiums you paid for the policy. This is because a significant percentage of the premiums have gone toward covering administrative expenses for the period your policy has been running. In addition, surrender charges may also apply.
Surrender charges are imposed by insurers to caution against the surrendering of policies before maturity, and to cater for administrative costs occasioned by the early surrender.
The terms and conditions of your education policy should be thoroughly reviewed before deciding whether to surrender it. The surrender value clause, surrender fees, and any other relevant fines or penalties should all be carefully read and understood.
Knowing these clauses will enable you to decide for yourself whether surrendering the insurance is the best course of action given your financial circumstances.
Consider exploring other alternative choices before surrendering your education policy. Instead of fully relinquishing a policy, some policies do give a provision that allows you to take out a loan against its cash value. This can help you access funds while keeping the policy intact and reaping the long-term benefits. Alternatively, you may be able to convert the policy into a paid-up policy, which requires no additional premiums to be paid and the policy continues to provide some degree of coverage.
The intended use of the surrender earnings must be also taken into account if you choose to surrender your education policy. While surrendering the policy may provide immediate access to cash, it's essential to have a plan in place for utilising the funds effectively.
You should also think about alternative ways of funding for education expenses as well as the potential effects of surrendering the policy on your overall financial goals and ambitions.
Surrendering an education policy before its maturity date is indeed possible, but it's essential to understand the potential implications and ramifications. While you may receive a surrender value from the insurance company, this amount in most cases may be lower than the total premiums paid, and surrender charges and other fees may also apply.
Before making this crucial and important decision, carefully review the terms of the policy, explore alternative options, and consider the long-term impact on your financial well-being. Ultimately, seeking guidance from a financial advisor can help you make an informed decision that aligns with your financial goals and objectives.
