This article is a brief introduction to insurance for private education and associated considerations.
It is not intended to be financial advice specific to your particular circumstances.
This article probably applies to you if you pay - or intend to pay - for private education for your child(ren).
To whom does this not apply?
Some families are fortunate in that they have other family members, perhaps grandparents, who are happy to fund the school fees. Other families are planning to pay the school fees themselves but know - or at least believe - that if something truly awful happened to them then other family members would step in and pay for their children’s continuing education. In both of these scenarios it may be superfluous for you to take out insurance - although you may want to have an explicit conversation with the family members that you think would take over the school fees as they may want to take out some insurance for this themselves.
But many families won’t have such support to fall back on or, at least, don’t want to have to count on it.
If that’s you, then read on.
There is insurance that specifically covers school fees.
It’s pretty straightforward: if you die or get sick enough such that you cannot work then then the insurance company pays the school fees for your children until they are 18 years old. There are various tiers of costs that can be covered with the highest tier paying out £12,600 per term - enough to just about cover the costs of boarding at a traditional public school.
So what would it cost?
The most expensive (and therefore most comprehensive) cover for two children is about £250 per month.
£250 a month probably sounds like a lot but… If you do the math you will see that insuring a child from the age of 4 through age 18 for the highest cost tier adds about 10% to the cost of their total education. So, in other words, you are paying a 10% premium to ‘guarantee’ their education if something bad were to happen to you. Maybe that seems less expensive when you look at it that way?
The costs scale down as the amount of the cover decreases; as a ballpark figure you can use 10-15% of the school fees as the cost of the insurance.
You may not need to insure for the full amount.
If you work at a big company then you probably have some insurance already.
Various big employers offer, as standard, employees life insurance of 3-7x their salary and critical illness cover (a.k.a. long-term disability) that pays a percentage of their current salary until their retirement age.
Some of that cover will likely be needed to pay for your family’s living costs excluding private education - like the mortgage or just other basic living expenses. But it still could reduce the amount of school fees cover that you would require.
You may have savings/investments that could help.
If you have a significant ISA pot or other savings/investments they could, of course, be used to pay for your families well being and/or private education. So how much insurance you would like today depends on the value of your assets. All else equal, the greater your savings/investments, the less insurance cover you would need. If you are slightly older - e.g. if your kids will still be in school after you are age 55 - then your pension might be able to help as well.
Note: you can read more about 'Investing For Private Education' here.
You are not limited to ‘school fees’ insurance specifically.
You could take out life insurance and and/or critical illness cover that is more general in nature (i.e. it could be spent on anything). This may be a good idea if you want to protect against other costs instead of or in addition to school fees.
It’s important to note that the school fees insurance and critical illness insurance discussed above would not apply if you simply lost your job - that’s called ‘income protection’ insurance. You can purchase that separately and it is sometimes a good idea but it is usually quite expensive (especially if you are insuring a relatively high income).
The key is that the various parts work together to form a coherent plan.
This is where bespoke financial planning can help - whether done yourself or with the help of a professional. By looking holistically at your assets and income you can come up with an informed plan that will help determine how much insurance you want.
A bit about TindleWealth
We strongly believe that insurance is only a part of your unique financial puzzle - a puzzle that is best addressed with a holistic financial plan. Our financial planning service costs a minimum of £2,400 - payable either via a monthly fixed fee or from the investments that we manage for you - and is designed to touch every part of your financial life including your ISAs, pensions and any other investments as well as insurance. It really is best when all parts of your financial life work together. We make that happen.
Please get in touch if you think you might benefit from our services - every initial consultation is free and most people learn something from this initial chat even if they don’t move forward. Use the form below or reach out to Scott Tindle, CFA directly at firstname.lastname@example.org