[HKD 6 million to raise a kid?] How to use savings insurance to secure your child’s future?

2025-02-07

8 Mins Read

Key considerations for building a child’s education fund
Comparison of common savings methods for a child’s education fund
Why should parents consider using savings insurance | How to choose the right savings insurance
WealthAhead Savings Plan

Over a decade ago, a well-known advertisement in Hong Kong famously claimed that raising a child costs HKD 4 million. Today, many have adjusted this estimate to HKD 6 million. In an increasingly competitive society, parents naturally want to plan ahead for their children's education fund, ensuring they have more choices in the future.

An education fund is not just about covering school fees—it is about securing your child’s long-term aspirations. This includes funding university education, professional training, or even providing capital for entrepreneurship or a first home purchase. By starting early with savings and financial planning, parents can ensure their children have the necessary resources to pursue their dreams and ambitions when they reach adulthood. So, how should parents plan for their child’s education fund? What are the common education fund options and wealth transfer tools available? Today, we will explore these in detail.

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Key considerations for building a child’s education fund

Establishing a robust education fund requires careful planning, taking into account various factors such as financial goals, risk tolerance, and liquidity needs. A well-structured financial plan ensures that future educational expenses are covered while allowing flexibility to handle unforeseen challenges.

1. Education funding goals and timeframe

The financial requirements at different stages of a child’s education vary significantly, making it essential to set clear goals and timelines. Parents should develop a savings strategy based on their child’s age and educational aspirations, considering factors such as degree programmes and professional training.

Assessing financial needs is crucial—this includes tuition fees, living expenses, and other associated costs. To achieve these goals, it is important to determine a specific savings target and establish a structured timeline. For instance, parents should identify how much funding will be required at different milestones in their child’s education and ensure sufficient financial resources are available when needed.

Higher education, particularly university tuition, often comes with substantial costs, necessitating a longer savings period to accumulate sufficient funds. If parents plan to send their child abroad for further studies, it is advisable to start saving from the first year of organising a family to accelerate wealth accumulation. For an estimate of tuition fees in popular overseas study destinations, parents can refer to the cost breakdown provided by AXA.

2. Risk and stability considerations

Since an education fund is meant to provide stable financial support throughout a child’s development, security and stability should be top priorities. Parents should adopt a diversified investment strategy to balance risk and returns.

When building an education fund, in addition to traditional options like stock investments and fixed deposits, parents may also consider medium- to long-term savings insurance plans. These savings insurance plans typically invest in high-quality assets, such as government bonds, corporate bonds, and listed equities. Some plans even include access to private equities, which usually have high entry requirements, offering potentially higher returns than fixed deposits. This diversification helps mitigate risks—if one asset class underperforms, other investments can provide stability and maintain overall financial growth.

3. Financial flexibility

A family’s financial situation—such as income, expenses, and changes in family members—can impact savings goals. Therefore, an education fund should have a degree of flexibility. Choosing savings tools with adaptable features allows parents to review their plans regularly and make adjustments based on different life stages. Options such as policy splitting or partial withdrawals enable parents to ensure their financial plans remain aligned with their actual needs.

4. Inflation protection

A child’s education fund is a medium- to long-term investment, requiring a forward-looking approach. As education costs tend to rise over time, inflation can erode the purchasing power of savings. Opting for financial products with inflation-proof features, such as savings insurance, can help ensure that the real value of the fund continues to grow, safeguarding future educational expenses.

5. Integration with long-term financial planning

An education fund should be integrated with other aspects of family financial planning, such as retirement savings. Parents need to consider their overall financial capacity and risk tolerance when choosing a savings strategy, ensuring that funding their child’s education does not compromise other important financial goals. Additionally, parents may explore savings plans with wealth transfer features, allowing them to extend their financial legacy across generations and provide long-term support for their family’s future.

Comparison of common savings methods for a child’s education fund

There are multiple ways to build an education fund for your child. Parents can choose the most suitable savings tool based on their financial situation, risk preference, and funding needs. Below is a detailed comparison of some common savings methods, highlighting their key features, advantages, disadvantages, and suitability.

1. Fixed deposits

Features: A low-risk savings option that offers a fixed interest return.

Advantages:

Extremely low risk, making it suitable for conservative parents.
Easy to manage and allows convenient access to funds.

Disadvantages:

Relatively low interest rates limit potential capital growth, making it difficult to keep up with inflation and rising education costs.
Deposit terms typically range from one to three years, limiting the benefits of long-term compound interest.

Best suited for: Families who need stable funds in the short term or are highly risk-averse.

2. Stock and fund investments

Features: Offers high return potential but comes with significant market volatility risks.

Advantages:

· Can generate long-term returns through stock price appreciation.

· Provides diverse investment options with high flexibility.

Disadvantages:

· High volatility may result in financial losses, making it less suitable for a stable education fund.

· Requires investment knowledge and active management.

Best suited for: Families with a high risk tolerance and investment experience, best used as a supplement to an education fund.·

3. Savings insurance

Features: An insurance product that combines savings with life protection.

Advantages:

Offers guaranteed cash value, often reaching breakeven within a specific period.
Allows returns to accumulate through compound interest, making it ideal for long-term capital growth.
Some products include wealth transfer features, enabling generational financial planning.

Disadvantages:

Early termination may result in financial loss, requiring careful consideration of policy terms.

Best suited for: Families looking for stable capital appreciation and life protection, especially those planning for a medium- to long-term education fund.

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Why should parents consider using savings insurance to build a child’s education fund?

Savings insurance is a product that combines life protection with a savings component, enabling parents to steadily accumulate funds for their child’s education. It works by making regular premium payments, which in turn build up the policy’s cash value as an educational fund reserve.

1. Capital growth and inflation protection

Education costs tend to rise over time, particularly under inflationary pressure. Relying solely on fixed deposits or cash savings may not be sufficient to counteract the impact of rising costs. The bonus growth from savings insurance helps to mitigate inflation, ensuring that the purchasing power of the education fund is preserved as much as possible. As the policy accumulates value, the compounding effect generates stable returns, allowing the education fund to grow consistently. This gives parents greater confidence in managing future education expenses.

2. Wealth transfer

Compared to high-risk stock or fund investments, savings insurance offers a more stable return, making it a suitable choice. It typically provides both guaranteed and non-guaranteed cash values, making it an ideal solution for families looking to build long-term savings while ensuring intergenerational wealth transfer. Savings insurance allows for the structured growth of an education fund within a predefined period, ensuring financial preparedness for a child’s future education. Additionally, some policies offer legacy planning tools, such as unlimited changes of the insured and designation of a contingent owner, ensuring that wealth can be passed down through generations.

3. Comprehensive protection

Beyond its savings function, savings insurance also provides life protection. This ensures that in the event of an unforeseen family crisis, the savings insurance remains intact, offering financial security and stability. Such comprehensive protection safeguards the family’s financial well-being and ensures that the child’s education remains uninterrupted, even in challenging circumstances.

4. Flexible usage

Savings insurance also allows greater financial flexibility, as policyholders can withdraw cash value when needed to meet various financial requirements. Some policies even offer ‘split policy’ features, enabling parents to tailor their coverage to better suit their changing needs over time.

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How to choose the right savings insurance to build an education fund?

Selecting the right savings insurance plan is a crucial step in building a stable education fund. Here are some key factors that can help parents choose the right savings insurance product:

1. Selecting an appropriate premium payment term based on financial capability

Savings insurance plans typically offer different premium payment terms. Opting for a shorter premium payment term allows policyholders to complete payments sooner, accelerating wealth accumulation and providing a clearer financial plan. AXA’s WealthAhead Savings Plan offers an ultra-short premium payment term of 2 years, enabling early wealth accumulation and delivering substantial returns for your child’s future education fund.

2. Expected returns and fulfilment ratios: choosing an insurer with a stable performance

To ensure steady growth of the education fund, selecting an insurer with a consistent fulfilment ratio is essential. Parents should compare the expected returns of different policies and review the insurer’s past fulfilment ratio performance to choose a product with stable returns and lower risk. AXA is committed to transparency in accordance with the requirements of the Insurance Authority in Hong Kong. We provide clear insights into the actual performance of non-guaranteed benefits through the fulfilment ratio, allowing parents to have greater confidence in achieving their children's education fund goals.

3. Flexibility: Ensuring wealth transfer and long-term financial planning

As children grow, they will encounter various milestones, making the flexibility of a savings insurance policy an important consideration. For instance, when a child progresses to higher education, parents can withdraw part of the policy’s cash value while allowing the remaining funds to continue growing. Additionally, parents can pass on their accumulated wealth to their children as part of their legacy planning.

AXA's WealthAhead Savings Plan offers a policy value lock-in option without an aggregate limit on lock-in rate, allowing policyholders to secure substantial returns. Furthermore, the plan provides the Flexi Segregation Option, enabling better asset management and ensuring a seamless and adaptable approach to wealth transfer.

【Limited offer】WealthAhead Savings Plan

Triple your savings, live life to the fullest. Enjoy 6.8% p.a. guaranteed preferential interest rate² for the first year on prepaid premiums.

AXA Limited Offer – WealthAhead Savings Plan key features^{^}:

2-year premium payment term – projected total cash value equals 315% of the total premiums paid at the end of the 20th policy year¹
Enjoy 6.8% p.a. guaranteed preferential interest rate for the first year on prepaid premiums²
Divide your policy into multiple separate policies for added flexibility
Accelerate wealth building with high potential returns and exceptional liquidity
Lock-in gains without an aggregate limit
Change the insured as many times as needed for effective wealth succession
Continue your legacy planning with contingent policy ownership
Name a contingent insured for life protection and wealth planning
Flexible death benefit options for better family protection

^{^}Subject to terms and conditions. For detailed terms, conditions, and exclusions, please refer to the product brochure and policy contract.

Plan ahead for your child’s future

Whether you are preparing for your child to study abroad or pursue education locally, ensuring sufficient financial resources is a key responsibility for every parent. With rising inflation and increasing education costs, this task has become even more challenging. In such an environment, savings insurance offers a stable option with built-in risk control, helping to mitigate future inflationary pressures while safeguarding your child’s—and even future generations’—financial needs.

By incorporating savings insurance into your education fund strategy, you can ensure steady capital growth and lay a strong foundation for your child’s future. Planning ahead today will be one of the most valuable gifts you can give them.

1. It refers to the projected total cash value equals 315% of the total premiums paid at the end of the 20th policy year (which translates into a projected total Internal Rate of Return of 6.06% p.a.). The projected values are for reference only and based on certain assumptions, including but not limited to USD is selected as the policy currency, annual premium payment mode is chosen, all premiums are paid in full when due, no benefits have been paid, and no withdrawals or other policy options have been exercised. These projected values are not guaranteed and is projected based on the Company's current assumed bonus scale. The actual values may be higher or lower than these projected values.

2. The policy currency must be USD and a lump sum payment equal to twice the initial annual premium of the basic plan must be made upon policy application. Terms and conditions apply. For details and exclusions, please refer to the related promotion leaflet.

All product content mentioned above is subject to terms and conditions. For detailed terms, conditions and exclusions of the plan, please refer to the related product brochure and policy contract.

WealthAhead Savings Plan is underwritten by AXA China Region Insurance Company (Bermuda) Limited (Incorporated inBermuda with limited liability) (“AXA”).

No warranty or responsibility is assumed by AXA Hong Kong and our related or holding companies regarding non-infringement, security, accuracy, completeness, adequacy, reasonableness, fitness for a purpose or free from computer viruses in connection with the information and materials provided. AXA Hong Kong and our related companies and holding companies do not accept any liability for any loss, damage, cost or other expense, whether wholly or partially, directly or indirectly, arising from any error, inaccuracy or omission of the information and materials to the extent that such liability is not excluded by law.