A popular approach these days is endowment plans. 'Children's Endowment Plan' is available for those aged 1 to 10, and acts as a savings policy for the child's education. The maturity period tends to end when the child turns 18 or 21 years old, when he or she is ready for tertiary education.

Endowment plans cover the risk for a specified period. The sum assured along with the entire bonus accumulated during the term of the policy is paid back to the policyholder upon the completion of the policy's term. It is this feature that accounts for the popularity of endowment plans.

As compared to whole life policies, the premium rates for endowment plans are higher and the bonus rates lower. The cost of an endowment plan is typically double that of a whole life policy.

On the plus side, these plans offer you an endowment - representing a return on your premium payments which are payable to you in your own lifetime when the policy comes to an end.

Overall, endowment plans are the most suitable of all insurance policies for covering the risks to a family breadwinner's life. Not only does an endowment plan provide financial risk cover for the family- if the policyholder were to die prematurely; the insurance amount is also repaid once this risk is over. The endowment amount can then be used for funding major expenditures such as your children's education.

Another option to generate good financial returns on your savings in a cost-effective manner and at a sensible risk level is investing in unit trusts.

Unit trusts are large portfolio of securities that comprise a diversification of equities, bonds and other financial instruments. As an individual investor, you may not know which are the best shares to buy or may not have the time to track the stock market. Unit trusts offer access to professional fund management who will do all the spadework for you.

Unit trusts are generally meant to be medium-to long-term investments. You should be prepared to hold your investment for at least 3 to 5 years to ride out any market volatilities and reap substantial returns.

The type of unit trust that you invest in should reflect:

your risk tolerance level

financial goals

investment time horizon

investment experience

Equities are typically known as superior investments compared to cash or bonds. Therefore, if your child is still young, it makes sense to invest in a unit trust that provides maximum growth with a higher concentration on equities. As the time to write cheques for university nears, switch to a more conservative fund, such as one that invests in bonds or cash.

The following table summarises how unit trusts grow at different rates.

Source: "Investing in Unit Trusts (2nd Edition)" 1997 by Peter Douglas and Andy Ong

Thus, by investing in a unit trust with 4% rate of return, your investment of $10,000 will grow to $14,000 in 10 years' time.

However, if you have a higher risk appetite, invest in a more aggressive portfolio that grows at 8% per annum, your investment will reap $21,600 over the same time span.

A regular savings plan (RSP) is a commitment to save a fixed minimum amount regularly, usually monthly, which is invested in units of a unit trust.

The units closely reflect the value of the stocks, shares and bonds held within the trust. You can make additional savings in any month for a minimum period of six months. The plan can be stopped at any time thereafter and you either sell the units back to the managers at the current market price or continue holding the units as an ordinary unit trust.

A Regular Savings Plan works in the same manner as an endowment plan, except that your savings are invested in a unit trust instead of insurance.

To get the best of both worlds, you can put aside part of your savings in an endowment plan to enjoy its protection benefits while investing some of your money in a unit trust for higher projected returns.

The more you know about tertiary education costs, your savings options, and your financial situation, the easier it will be to prepare wisely for your child's education.

So the very first thing you should do-is get a handle on your financial circumstances. Develop a budget of your monthly income and expenses and figure out if you can pay educational costs from assets.

Remember, every dollar you invest will save your child future repayment and interest charges.