Training insurance for children: Setting financial foundations for the future
2 Apr 2025
10
Minutes
Katrin Straub
CEO at nextsure
Education for children is one of the biggest financial challenges for families. A child education insurance promises to provide early precautions in this area. But what does it really offer and what aspects are crucial for meaningful coverage?
The topic in brief and concise terms
An education insurance combines saving for the child's education with death protection for the payer.
The returns on traditional policies are often low; alternatives like ETF savings plans can be more advantageous.
Before finalizing, costs, flexibility, and actual needs should be carefully assessed and offers compared.
Understanding Educational Insurance for Children: The Basics
An education insurance policy is essentially a capital life insurance tailored specifically for financing a child's education. It combines long-term saving with insurance protection. Typically, it is taken out by parents or grandparents, with the child being the beneficiary.
The concept behind it is straightforward: over many years, often from the child's birth, regular contributions are made. At the agreed time, typically on the child's 18th or 25th birthday, the accumulated sum, including potential bonuses, is paid out. This capital can then be used for tuition fees, the first apartment, or other education-related expenses. A key feature often includes integrated death protection for the contributor. Should the insured parent pass away, the insurance takes over the subsequent payments, ensuring the savings goal is still reached. For comprehensive family coverage, this is an important aspect.
This form of provision aims to create financial security for an important phase of the child's life. The terms often extend over 15 to 25 years. Thus, even with smaller monthly amounts, starting at around 25 euros, a considerable sum can be accumulated over the years. Early planning allows the optimal use of compound interest. Therefore, education insurance is a component of educational provision for children.
Functionality in Detail: Contributions, Duration, and Protective Mechanisms
Premiums for a children's endowment insurance can be paid monthly, annually, or as a single payment. Many providers allow payments starting from 25 or 50 euros per month. The term is usually chosen so that the payout occurs at the start of an apprenticeship or studies, often at 18 or 19 years old. Longer terms, up to the age of 25, are also common to cover, for example, a master's degree.
A key component of many policies is the aforementioned death benefit. If the person paying the premiums (usually a parent) passes away, the insurance steps in and continues the contract without requiring further contributions. This ensures that the child receives the agreed amount at the end of the term. Some tariffs even offer protection against the incapacity of the premium payer to work. The payout is made either as a lump sum or as a monthly pension. The saved capital is not earmarked; the child can use it freely. Considerations regarding child protection in the event of death play a significant role here.
Additional modules can expand the coverage, here are some examples:
Accident insurance add-on for the child.
Option for a future occupational disability insurance without a new medical examination.
Long-term care insurance components.
This flexibility allows for adjustment to individual needs and financial capabilities. However, it is important to check the exact conditions and costs of these additional services.
Realistically Assess Costs and Return Opportunities
The cost of an educational insurance policy for children is composed of various components. These include initial and distribution costs, administration fees, and the cost of risk protection (e.g., death cover). These expenses reduce the yield. The guaranteed interest rate on traditional policies has significantly decreased in recent years due to the low-interest environment, often below one percent.
An example calculation illustrates this: With a monthly savings rate of 100 euros over 20 years, a total of 24,000 euros is deposited. A traditional educational insurance policy might pay out 29,000 to 32,000 euros after costs and before taxes, depending on the surplus. Fund policies potentially offer higher returns but also carry market risks. The actual yield depends greatly on the chosen product and the development of capital markets. Therefore, it is advisable to compare different savings options for children.
Insurance experts and consumer advocates point out that the returns after deducting all costs are often not attractive. The lack of transparency in cost structures is frequently criticized. Before deciding on an educational insurance policy, you should always obtain several quotes and carefully examine the effective costs. A term life insurance can often be cheaper to arrange separately to ensure death cover, while savings are made through other investment forms.
Examine meaningful alternatives to traditional training provision
In view of the often high costs and low returns of traditional education insurance, many parents are looking for alternatives. A popular option is ETF savings plans. These invest in exchange-traded index funds and generally offer higher long-term return opportunities with lower ongoing costs, often under 0.5 percent per year. Over a period of 18 years or more, attractive sums can be accumulated, although they are subject to market fluctuations.
Other alternatives include:
Savings plans with banks: Safe, but currently with usually low interest rates. Suitable for risk-averse savers.
Fixed-term deposits or call money accounts: Flexible and secure, but the interest often barely covers inflation. Currently, there are offers over three percent again.
Building savings contracts: Can make sense if real estate financing is planned later, but often offer low returns as a pure investment.
Children's investment accounts: Enable direct saving in shares or funds in the child’s name.
The choice of the right alternative depends on individual risk tolerance and financial goals. Many experts recommend separating risk protection from capital investment. A separate term life insurance policy for parents and a flexible, higher-return savings plan for the child can often be the better solution. A disability insurance for children can also set important early milestones. The decision for the appropriate education provision should be well thought out.
Expert Knowledge: Legal Framework and Tax Implications
Parents are legally obliged to finance an appropriate education for their children, provided they are financially able to do so (§ 1601 BGB). This obligation generally applies to the first professional qualification. An education insurance policy can help fulfil this obligation. The accumulated capital usually belongs to the child, once it is irrevocably designated as the beneficiary or the policy is in their name.
Contributions to education insurance policies contracted before 2005 may be recognised as special expenses (provisions for future liabilities) for tax purposes. This is usually no longer the case for newer contracts. The income from the payout may be subject to income tax, particularly if the term was less than twelve years or if the payout occurs before the policyholder is 60 or 62 and the contract was made after 2004. Our expert tip: Always clarify tax questions with a tax adviser, as individual circumstances are crucial. The child's health insurance is a separate, yet equally important aspect of financial precaution.
Contract terms should be carefully examined. Pay attention to notice periods and possible losses in the event of premature termination. Flexibility with payment breaks or additional payments can also be an important factor. Having personal liability insurance for children is a must for every family.
Making Optimal Decisions: Essential Tips Before Signing a Contract
Before you take out an education insurance policy for your child, a careful examination is essential. Compare at least three to five different offers. Focus not only on the projected final amount but above all on the guaranteed benefits and the specified effective costs. These provide insight into how much of your contributions are actually used for saving and how much for costs.
You should particularly consider the following points:
Flexibility: Check if additional payments or contribution breaks are possible and under what conditions.
Risk Coverage: Is the death benefit sufficient? Are there options in case of the policyholder's occupational disability?
Return Opportunities: What is the guaranteed interest rate? What opportunities and risks exist with fund-linked options?
Transparency: Are all costs clearly and understandably broken down?
Our expert tip: Consider whether separating saving operations and risk coverage is more advantageous for your situation. A combination of an affordable term life insurance policy and a flexible ETF savings plan can often offer higher returns with more transparency. Also, think about complementary coverages like a dental insurance for children. Get comprehensive advice to find the best solution for your child's future.
Now request an individual risk analysis: Have your insurance situation checked free of charge and receive specific optimization suggestions.
More useful links
Deutsches Institut für Wirtschaftsforschung (DIW) provides comprehensive information and analyses on education and the labour market.
FAQ
When should one take out educational insurance?
Ideally, an education insurance policy should be taken out as early as possible, ideally shortly after the birth of the child. This allows for a long savings phase and optimally leverages the benefits of compound interest.
Who is the beneficiary of an education insurance policy?
The beneficiary is usually the child for whose education savings are being made. The parents or grandparents are typically the policyholders and premium payers.
What happens if the contributor dies?
Most education insurance policies include death coverage. If the contributor (e.g., a parent) passes away, the insurance covers the remaining contributions so that the savings goal for the child is achieved.
Is the money from the training insurance earmarked?
No, the paid-out capital is usually not earmarked. The child can freely dispose of the sum, even if it was originally intended for education.
Can an education insurance be cancelled?
Yes, cancellation is usually possible, but it is often associated with financial disadvantages, as the surrender value can be particularly low in the first few years. Therefore, a cancellation should be well considered.
Are the contributions to the training insurance tax-deductible?
For contracts concluded before 2005, contributions may sometimes be claimed as special expenses. For newer contracts, this is generally no longer the case. Yields can be subject to taxation. Consulting with a tax advisor is recommended.
