School fees are rising faster than salaries. An education plan is how you catch up

Every Kenyan parent knows the January feeling. Fees are due, the amount is higher than last year, and the money has to come from somewhere — a chama, a loan, a shylock, or the business float that was meant for stock.

An education plan is simply a way of moving that pressure from January to a decade of small, manageable contributions.

What is an education plan, exactly?

An education policy is a structured savings plan with a life cover component, timed to mature when fees fall due. You contribute monthly, quarterly or annually over a set term — commonly 10 to 18 years — and the plan pays out at maturity, sometimes in a lump sum and sometimes in staged payments across the years of secondary school or university.

It differs from an ordinary savings account in three ways:

1. It is hard to raid. That is a feature, not a limitation. Money earmarked for fees in a savings account tends to become money for something else.
2. It carries life cover on the parent. If the paying parent dies, the policy pays a benefit in addition to continuing.
3. It has a premium waiver. This is the part most people underestimate.

What does the premium waiver actually do?

This is the single most important benefit in the product, and it is worth being precise about it.

If the paying parent dies or becomes permanently disabled during the term, the insurer takes over the premiums. The policy is not cancelled, and it is not paid out early at a reduced value — it continues exactly as planned, and it matures on the original date for the original amount.

In practice, that means the child’s education is funded whether or not the parent is still there to fund it. An ordinary savings account cannot do that. It stops the day the contributions stop.

Why does starting early matter so much?

Because compounding needs time, and the difference is not small.

Consider a parent aiming for the same maturity value:

• Starting when the child is 2 years old gives roughly 16 years of contributions and growth.
• Starting when the child is 11 gives roughly 7 years.

To reach the same target, the second parent has to contribute substantially more each month — not a little more, but on the order of double or worse, because there are fewer than half the years and far less compounding. The money has to do the work that time was supposed to do.

There is a second, quieter cost to waiting: the life cover component is priced on the parent’s age and health at the time of application. Both get more expensive over time, and health can change in ways that restrict your options entirely.

How much should I be putting away?

Work backwards, not forwards. The useful sequence is:

1. Pick the target. What kind of secondary school and university are you planning for, in today’s money?
2. Add for fee inflation. School fees have historically risen faster than general inflation in Kenya. Building in an annual increase is realistic, not pessimistic.
3. Set the maturity date. The year the child starts Form One, or the year they start university — or stagger two plans across both.
4. Solve for the monthly contribution. That is the number that matters, and it is the one an adviser can calculate for you against actual product illustrations.

What should I watch out for?

Education plans are long-term commitments, and they punish inconsistency. Before committing:

• Be realistic about the contribution. A plan you can sustain for 15 years at a modest amount beats an ambitious one you lapse in year three. Early surrender typically returns less than you paid in.
• Understand guaranteed versus projected returns. Illustrations often show both. The guaranteed portion is what you can rely on; the rest depends on the fund’s performance and is not promised.
• Check the charges. Ask what proportion of your early contributions goes to charges rather than into the fund.
• Confirm the payout structure. A single lump sum and staged annual payments suit different fee patterns.
• Name a beneficiary and keep it current.

Is an education plan the only option?

No, and an honest adviser should say so. A disciplined parent with a good money market fund and a separate term life policy can achieve something similar, sometimes at lower cost — but it requires the discipline not to touch the fund, and the initiative to buy the life cover separately.

The education plan bundles the discipline and the protection together. For most households, that bundling is exactly why it works.

Working out your number

If you would like the actual monthly figure for your child’s age and your target — with the guaranteed and projected values shown separately, and the premium waiver terms in writing — request a quote or book a consultation.