“Forced Savings” Through Life Insurance Policies

Endowment life policies are the most popular type of life insurance policies in Kenya because of their “forced savings” characteristics. They go by many different brand names. One of the most common types of an endowment policy is a school fees policy that essentially combines life insurance protection with savings.

Over my career as an insurance agent, I have seen first hand how such policies have helped people accomplish a financial goal such as cater for secondary school and university education, raise business capital or set aside funds for retirement.

However, I have also encountered numerous people who in the course of considering whether to buy an endowment insurance policy, have whipped out their calculators and proceeded to demonstrate to me just how low the return on an endowment policy is, in total disregard of the protection aspects. I have always appreciated that business of putting money aside religiously to fund a future project is a herculean task.

Anyone over the age of 40 will tell you that one of the most difficult things to do is to sustain regular savings. The average Kenyan, more often than not, will be caught with the intrigues of life and find themselves dipping into their savings to deal with an emergency or some other thing that may or may not be important.

The Concept of “Forced Savings”

The idea behind forced savings is that it’s difficult to save money. Endowment insurance plans such as school fees policies are designed to force us to put money aside for a fixed period of time e.g 15 years. Money (premiums) is taken out of your hands today and then years down the road, you get it back at an added return. Essentially, when you put money in an endowment insurance policy:

  • You can’t touch the funds until three years are over.
  • It doesn’t make financial sense to get out early, so you are “forced” to continue paying the premiums until such a time that it makes sense to surrender the policy or until the policy matures and you can access your savings.

If you have a future project such as funding secondary or university education and you are determined to get it done without much hassle, you should consider signing up for an endowment insurance policy.

Additional Benefits of Saving Through an Endowment Insurance Policy

In addition to forced savings, you must always remember that this is, first and foremost, a life insurance policy. The savings aspect is secondary to the life insurance protection.

In the event of permanent disability, death and even a critical illness (many leading insurers now have this built into endowment insurance policies), you and/or your beneficiaries receive a monetary compensation even if you have only paid one insurance premium! Nothing beats that.

To find out more about how endowment insurance plans such as education insurance policies can force you to save and achieve your financial goals, read our article on this topic. You can also send us a message through our contact page or request a quote.

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