Public schooling assured

Parents considering educating their children privately need to be aware at the outset of the likely cost. Secondary schooling for just one child to the age of 16 could cost more than pounds 30,000 as a day pupil - and at least double this if boarding is being considered.

Only a few are lucky enough to have trust funds that they can use. Many have grandparents with sufficient capital to fund school fees.

Yet well over half the parents and guardians who privately educate their children pay the fees themselves. Anyone considering this route needs to plan carefully - both to ensure that the funds are in place and to minimise the impact on the family's overall finances.

While there are different means of saving for school fees, schemes that depend entirely on stock market performance, which can go up or down in value, can leave the investor with a shortfall. Life assurance still offers one of the most important means of paying for private education for children - and grandchildren.

Life assurance can be used to save for future or immediate school fees. The earlier a scheme is set up, the cheaper it will be - a number of independent financial advisers earn their livelihood from selling specialist school-fee packages.

The simplest use of life assurance for early planning is to use a charitable trust to invest a lump sum. Although this has lost some of its tax advantages, it still offers a guaranteed way of paying the fees on a term basis.

In effect, the capital is used to buy an annuity which pays the fees direct to the school. A sum of pounds 20,000 could provide around pounds 30,000 worth of school fees over five years.

Most people, however, do not have the pounds 20,000 to invest. In this case a conventional with-profits endowment can provide the answer.

Many private schools now follow the state system and provide secondary education from 11 rather than 13, as is the case with the more traditional boys' schools - so you can plan ahead on the basis of a conventional 10- year endowment policy taken out before a child is one year old. This will then provide a lump sum when the child is 11.

The clever parent should use the proceeds of the policy to negotiate with the school to pay all the educational fees - at least to 16 - in one lump sum. Most schools will discount charges, or at the very least any future increases in their fees, if they are offered a one-off lump sum payment.

The benefits of conventional with-profits life assurance are twofold. Firstly, they offer generous life cover. Secondly, once declared, the annual bonus - expressed as a percentage of the sum assured - cannot be taken away or reduced. While these tend to be quite low, the bulk of the maturity value is the terminal bonus, paid to reflect the life office's performance over the whole period of the policy.

Even though the values of the terminal bonus on 10-year policies have fallen in recent years as inflation has come under control, it still forms a significant proportion of the maturity proceeds, usually over a third of the value.

Today, a 30-year-old paying pounds 100 a month into a 10-year with-profits policy can expect a good life assurance company to forecast a maturity value in excess of pounds 18,000. The actual value will depend on the performance of the underlying investments.

What of those who cannot plan ahead or decide for whatever reason to send a child to private school without any savings in advance? Paying fees out of income is very expensive.

There are ways of financing education by spreading the payments over the term of a life assurance policy or by taking out a mortgage.

Ecclesiastical Insurance, for example, will lend up to 75 per cent of the value of a property for school fees with a life assurance policy being used to repay the loan before the borrower retires. Many building societies offer similar schemes allowing mortgages to be increased up to the normal valuation level.

Shorter-term loans, usually for 10 years, are also available from the specialist insurance brokers such the School Fees Insurance Agency. These are usually arranged with a bank and are repaid with a 10-year with- profits life assurance policy taken out with one of the better-performing companies such as Friends Provident.

The borrower draws down the school fees each term from the bank. In return a monthly sum, dependent on age at the outset, is invested in an endowment policy that is used to repay the loan after 10 years. Meanwhile, interest is paid on a the outstanding loan at a preferential rate, usually a couple of points over the bank's base rate.

Monthly payments will therefore start quite low but would go on rising until the end of the school fees when they will stabilise. At the end of 10 years, the loan will be repaid out of the policy's maturity value. Because life offices are conservative in their forecasts of future values, the borrower should find a small capital sum left over.

The earlier the planning for school fees, the cheaper it becomes. But even for those who do not plan ahead, life assurance can provide a means of spreading the cost.

Some useful phone numbers

IFA Promotion 01179 711177

Will give you details of three independent financial advisers in your area; ask for specialists in school fees and/or investments

Barclays 0800-374 373.

Free guide on the cost of putting children through higher education

Dept of Education

and Employment 0171-510 0150

Detailed information on student grants - including the means test rules - and loans

ISIS 0171-630 8793

Independent schools information service, offering detailed information on 1,300 private schools