TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Empowering parents with college education insurance
Despite increasing awareness among parents about the importance of having a college education insurance plan, sound advice from insurance companies could be increased
Change Size
D
espite increasing awareness among parents about the importance of having a college education insurance plan, sound advice from insurance companies could be increased.
For many families, the beginning of the year is a time to set goals ' including financial goals. Many experts believe that while saving money for retirement and grossing more take-home pay are popular resolutions for this year, for parents, saving for a college education is also a likely priority.
According to a recent survey by Nielsen-Prudential, the top five financial goals for Indonesian parents are their children's education, investments, startup capital for businesses, emergency funds and savings for haj.
The same survey also revealed that the more time it takes to achieve a given goal, the less confident parents believe that they can achieve it. While 61 percent of respondents were confident they could achieve their short-term financial goals, only 28 percent were confident in financial goals that took more than five years to reach.
What sorts of opportunities does this present?
Reports indicate that many parents are still relying on low-interest savings accounts to achieve their financial goals. 'In this scenario, given rapidly rising education costs, the prospect of these parents reaching their goal is low,' said certified financial planner Asep Burhanudin. Experts believe that there could be a large gap in terms of perception versus reality of being a prepared parent.
Despite the fact that many parents are still relying on traditional savings products, they are actually aware of the risks that can impede their financial goals, such as illness, accident, death and loss of jobs/income.
This awareness has yet to accelerate the adoption of an education plan. A source says that only 27 percent of parents have taken up an education plan, while 70 percent only do rough calculations.
These gaps are opportunities for insurers. The question is, how do insurers respond to this gap?
'While having the education fund is necessary, we would still need to educate parents on the importance of having insurance coverage for their children's education plan', said Irawan E. Prasetyo, business partner of Allianz Star Network.
'Otherwise, they could be sacrificing their assets to get on with the risks that hinder their financial goals.'
While the opportunities are there, insurers also need to address some challenges.
The challenge, according to experts, was to educate parents to start early, factoring inflation into their plan.
'When coming up with cost estimates, only a few parents included the inflation rate and interest rate in their estimates. Most parents are only basing their cost estimates using present cost, which obviously will estimate a cost that is lower than what they will actually need,' Asep explained.
The next challenge is to help parents select the right plan to compensate the inflation rate.
Practitioners suggest investing in an education plan that has the potential and track record to compensate inflation. 'Unit-linked education plans allow parents to choose, with advice from our group of advisors, where parents would like their money to be invested, based on their taste for risk,' said Bogy Suyatno, business partner of Skyline, a major Prudential Life agency.
'Our customers like the idea of tailored investment strategies for conservative, balanced and high-risk investors.'
With the current market dynamic, the selection of the investment would also need to be flexible with parents' needs and desires.
To address this challenge, some insurance companies provide the facility for customers to switch between products and redirect to new funds.
'This feature provides us with peace of mind and flexibility,' said a customer of unit-linked products who requested anonymity.
Parents also need to be educated on features of the education plan.
According to Naresh Chainani, Manulife financial consultant, there was a benefit to unit-linked savings plans that was critical. 'Parents need to know that not only it serves as an investment instrument, but it also provides parents with the opportunity to bolt on certain protection benefits,' said Naresh.
This important feature, according to Naresh, is the protection of premium payment. 'In the event of death or disability of the wage earner due to accident or illness, the insurance company will pay impending policy premiums up to policy term.'
In terms of selecting the right insurer, parents also need to carefully look at the investment vehicle.
Since tuition costs in Indonesia are climbing faster than inflation, an education plan tilted toward stocks is the best means to build ample savings in the long-term.
'However, parents need to be careful with the assumption of return in the plan, which needs to be based on historical performance', Naresh explained further.
Is having a great product the only thing needed?
'It is not only the product, but customers need to get proper advice from financial consultants on their actual needs' Irawan said. 'The question is not only which plan, but also how much, for whom and when.'
For parents, this is the key for them to decide and act upon.
'I have done a rough calculation (on the cost of college) for my daughter, however, I havel yet to decide on the (savings) plan,' Tatiana Soemitro, a mother of a 12 year-old, said. 'I know about banks and insurance offerings, but I do not have enough information to start executing a plan. I need sound advice.'
This customer demand is well known to insurers.
It is reported that many insurers are embarking on initiatives to increase the qualifications of their financial consultants. One of the reported initiatives is working with Financial Planning Standards Board (FPSB), to equip financial consultants with financial planning knowledge. FPSB is an international organization that operates standards, certification and programs for financial planning related organizations such as insurers.
Experts are also in agreement with this.
A certified financial planner who requested anonymity suggested that while investment-linked products were attractive for education plans, it requires an understanding of customer risk profile as well as educating the customers about investment instruments available in the market today along with their inherited characteristics. 'A customer centric approach is more suitable for financial planning products including educational plans,' he explained.
(Achmad Istamar)
