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As responsible parents, you do everything you can to give the best to your children to the best of your ability.
While parents tend to go the extra mile to give them the best basic necessities, education and personal development opportunities, they sometimes neglect planning for their protection.
With the rising cost of medical treatment and education, planning for your child’s future is more than just teaching them how to put away their duit raya in a savings account once a year.
Financially planning for your child’s future should also start as early as possible, with some as early as pregnancy itself.
Here are some takaful plans that your child may need:
Family Takaful
Medical/Health
Education
Future
Just like his older sister, coming from a single-income middle-class family, Daniel will eventually face some pressure to excel in his study, because his tertiary education options may be limited due to financial constrain. Here are some risks that Daniel faces now in his toddlerhood, up until he enters adulthood:
Unable to get into public tertiary education
Illnesses that require high cost of treatment
Accidents causing Total & Permanent Disability (TPD)
Death
Conventionally, takaful plan is only needed by people who have others dependent on their income, like Daniel.
However, a child at Daniel’s age also faces added risks as the mortality rate for a child below five is statistically higher than adolescents and adults at 7.31 to 10.61, compared to adolescent from 0.42 to 0.541.
Here are some reasons why a child needs a takaful plan.
If your child develops an illness that would make him/her ineligible for takaful plan later on, it's a good idea to get them covered early.
If the worst were to happen, the coverage could pay for funeral costs
The takaful benefits can be an asset for your child when he/she becomes financially independent.
The benefits can also cover student loans in the event of death or disability of the child.
Although these may seem far-fetched to you, but a takaful plan is a Plan B for your loved ones. Having said that, because a child is not earning an income, the coverage amount can be much lower than a breadwinner.
1Mortality rates by specific age group and gender in Malaysia: Trend of 16 years, 1995 – 2010, Journal of Health Informatics in Developing Countries
Takaful coverage for children has always been a topic of debate for most people, including financial planners.
Those who are not for children takaful protection argue that because the child is not contributing financially to the family, there is no need to have a protection plan for him/her. Unless, of course, your child is a successful YouTube star who rakes in millions.
However, those who are for children takaful protection said, although your child is not a YouTube star making lots of cash, it is still a smart financial move to have a takaful plan for your child.
One thing both camps agree on is – other financial priorities should come first before you even think about subscribing to a family takaful plan for a child. These priorities should include saving for emergency fund, making sure the other parent, especially the breadwinner, have enough takaful coverage, saving for the child’s college fund, and also planning for your own retirement savings.
If you have the above covered and would like the peace of mind of having your child covered as well, here are some suitable takaful plans for a child:
There are various types of takaful plans that one can get for a child:
Education takaful plan provides protection and long-term savings to finance the higher education expenses for a child. It comes as a standalone plan known as a child education takaful plan, or it as an investment-linked takaful plan.
The plan will provide the child with financial benefits if the parent or guardian suffers any set back covered under the plan, such as death or Total and Permanent Disability (TPD).
Ultimately, the plan provides the child with long-term savings (or education fund) for his/her studies.
An education takaful plan is eligible for personal tax relief of up to a maximum of RM3,000 per year for the combination of both medical and education plans.
Medical and health takaful plan covers the child for the cost of private medical treatment, like hospitalisation, surgery and treatment, if you are diagnosed with certain illnesses or are involved in an accident.
The cover acts as a standalone certificate or can be added to an investment-linked plan as a rider to provide better coverage and benefits.
A term plan is an individual family takaful plan that provides coverage for a specific amount of time (usually 5 to 20 years). The plan can be renewed after that time has ended, but the risk is, if Daniel falls sick, it may be difficult to renew the plan, or the contribution rate may increase.
The advantage of a term plan is, it tends to be less expensive than a typical family takaful plan.
If Daniel and Maria are concerned about guaranteed coverability, they can consider a family takaful plan for Nadia. It is designed to stay with an individual permanently as long as contributions are made.
Permanent takaful plans have a “maturity period” (typically at age of 70 years old).
The best thing about an investment-linked takaful plan is, you can add on riders as and when you deem necessary, according to your needs and financial situations. Some of the common riders are:
The amount of sum covered a parent choose for his/her child depends on what he/she wants out of it and the budget.
Here are some factors to consider when you are determining the coverage amount:
2http://funeralsmalaysia.com/en/services/muslim-funeral
3http://funeralsmalaysia.com/en/pricespromotions
With an increasingly polluted environment and stressful sedentary fast-paced lifestyle, children nowadays are exposed to various juvenile diseases. This affects not only them but puts the family’s finances in jeopardy when catering for the treatment of such diseases.
Medical treatments are not cheap, so much so that diseases are for the rich. Many parents have exhausted their life time savings or become heavily indebted in their bid to provide the best medical care for their ill child.
Young children tend to pay more for their takaful plans due to higher health risks for the infant to five-year-old group.
If you think diseases and sickness only happen to one in a million child, think again. Juvenile diseases could easily affect your children and as parents, you can protect and ensure you have the financial capability to provide the best treatment and care for your kids.
Here are the five most common childhood cancer :4
Leukemia
Brain, Nervous system
Lymphoma
Bone
Eye
Other juvenile critical illnesses are:
Insulin Dependent Diabetes Mellitus
The onset of Kawasaki Disease is from infant to 14 years old5
13.8% of primary school children in Kuala Lumpur to be asthmatic6
Rheumatic Fever with Valvular Impairment
Sickness can affect more than your health, even the young and seemingly health. With medical inflation estimated at 11.5% in 2016, and projected to rise to 12.7% in 2017, sickness can have an impact on your finances, too.
Although the common belief is that the younger you are, the lower you risks of being diagnosed with critical illnesses. This may not be true with young children.
Chemotherapy
Radiotherapy
Other hidden costs that you may not be aware of if a child falls ill:
Taking time off from work to care for your child
Additional costs such as transportation to the hospital, additional medicine and supplements
Consider alternative treatment for critical illness
Getting a second medical opinion on the diagnosis, treatment and prognosis
Catching cancer early often allows for more treatment options. Some early cancers may have signs and symptoms that can be noticed, but that is not always the case, especially for childhood cancer.
The best way to for early detection is to pay attention to the possible signs and symptoms of these common diseases.
For example, some of the common symptoms of leukemia are9:
If you notice one or more symptoms from the list above, it’s best to consult a doctor for further tests.
While any parents dread the thought of something happening to their child, preparing financial protection for their child before disaster strikes is necessary.
This makes getting a medical takaful plan when your child is healthy is crucial. It does not only provide your child with the financial coverage benefits, but if the unthinkable happens, you can concentrate on the recovery of your sick child rather than worrying about the mounting medical bills.
If everything is smooth-sailing, your child will be able to cash out on their sum covered when the certificate reaches maturity.
Additional protection can also be added such as the contributor benefit rider.
| Contribution Benefit Rider | |
|---|---|
What is it?A rider that protects the Person Covered should the contributor (parent or guardian) dies, is diagnosed with any one of the Covered Events, or suffers from Total & Permanent Disability (TPD) before the certificate maturity. |
How does it work?In such event, this rider will continue to protect the Person Covered (the child) by making all future contributions payable from the Tabarru’ Fund. |
4http://www.care.upm.edu.my/dokumen/13603_NCR2007.pdf
5https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5537154/
6GUIDELINES FOR THE MANAGEMENT OF CHILDHOOD ASTHMA
7http://www.federalgazette.agc.gov.my/outputp/pua_20131216_P.U.%20%28A%29%20358%20-%20PERINTAH%20KEMUDAHAN%20DAN%20JAGAAN%20KESIHATAN%20%28PINDAAN%20JADUAL%20KETIGA%20BELAS%29%20%202013%20%28disahkan%20oleh%20kementerian%29.pdf
8https://www.ncbi.nlm.nih.gov/pubmed/12693597
9https://www.cancer.org/cancer/leukemia-in-children/detection-diagnosis-staging/signs-and-symptoms.html
Education for children is one of the top priorities in a family with children. Good education is not cheap, even if you don’t plan to send your child for an overseas higher education.
Malaysia is the fifth-most expensive country to get a university education and according to a survey10 , the average working parent spends 55% of his or her salary on each child to complete higher education.
This means saving for your child’s tertiary education should start as early as possible.
So, how can Daniel juggle saving for both Nadia and Daniel?
How much you need to save for your child depends on where you plan to send your child to study, what kind of courses, and where he/she will be living during college.
Obviously, overseas education and courses like Medicine will cost more. Here are some of the factors that you need to consider:
Other costs that you need to factor in other than the tuition fees:
Registration fee
Cost of living
Currency fluctuation if your child is studying overseas
Unlike Nadia, Daniel still has a long road ahead of him before he starts his tertiary education. This means Daniel still have the luxury to start saving in small amount and let the power of compounding rate do its magic on his savings (investment).
Here’s how much Daniel needs to save for Daniel so he will have enough for his college fund when Daniel turns 18.
| Where to study? | Age to start | Estimated cost |
|---|---|---|
|
Private university in Malaysia |
18 years old |
RM80,000*11 |
* Cost of education is based on average cost and actual cost may differ. It does not include cost of living.
Terms and conditions apply.
Here’s how much Daniel needs to save:
| Daniel’s current age | 2 years old |
|---|---|
| Age to start higher education | 18 years old |
| Duration to save | 16 years |
| Total estimated average fees | RM80,000 |
| Estimated inflation rate | 4% per annum |
| Estimated investment rate | 5% per annum |
| Future value needed | RM149.838.50 |
To calculate your child’s education savings, use the Great Eastern Takaful’s Child Education Fund Takaful Calculator.
There are various ways or products available to save up for your child’s college fund.
Daniel needs to look for a Shariah-compliant education savings plan that protects his money, guarantees returns, and confers additional tax benefits.
Here are some suggestions for Daniel to raise enough money in the long-term for Daniel’s higher education fund:
SSPN-i is a savings scheme by PTPTN for higher education. It is:
A unit trust fund consists of a pool of funds collected from a group of investors with similar objectives.
This collective investment fund is managed full time by professional fund managers, and it typically includes equities, sukuk and assets.
Shariah-compliant securities are securities of a Bursa Malaysia-listed company which have been classified as Shariah permissible for investment.
A takaful education savings plan can be in the form of an investment-linked plan or a standalone plan that combines savings and takaful protection for your child.
If the above fails, parents still can consider withdrawing from the EPF Account 2 to pay for their child’s education.
EPF members are allowed to withdraw their Account 2 savings12 to fund their own education, or the education of their children, stepchildren and/or legally adopted children.
It is applicable for:
10https://www.imoney.my/articles/malaysia-ranks-5th-most-expensive-for-varsity-degree
11https://www.greateasterntakaful.com/en/takaful-solutions/financial-tools-to-know-what-you-need/child-education-fund.html
12http://www.kwsp.gov.my/portal/documents/10180/153718/EDUCATION_WITHDRAWAL_More_Information_20.07.2017.pdf
