Life Insurance, also known as Life Assurance, is a type of insurance policy that provides a monetary benefit (the sum assured) to a named beneficiary upon the demise of the life that has been insured. The policy may be for a specified duration or the entire life of the person insured by the policy.
Important Terminologies in Life Insurance
Below is a definition of some important terms that will help you better understand Life Insurance.
Insured: The person whose life is covered by the policy
Sum insured/assured: The amount of life insurance coverage in Kenya Shillings that the insured has purchased from an insurance company.
Policy term: The duration of the policy. It could be a fixed duration e.g. 20 years, up to a certain age, or for the entire life of the insured person.
Premium: The amount of money paid periodically to the insurance company to keep the policy in force. This amount may be paid monthly, quarterly, semi-annually or annually.
Life Insurance policy document: The actual physical document that contains all the terms, conditions and details of the contract between the insured and the insurance company.
Partial Maturity: Some types of life insurance policies pay a sum to the insured person before the end of the policy term. This sum is known as a partial maturity.
Beneficiary: The named person in the policy document who receives the benefit payment upon the demise of the insured person.
Bonuses: Some types of life insurance policies accrue bonuses that are paid out upon maturity of the policy. These bonuses may be guaranteed or discretionary based on company performance.
Surrender value: Some types of life insurance policy have a surrender value. This is usually after successful payment of the premium for at least three years. The insured can “surrender” the policy to the insurance company and receive this value if they can no longer afford to pay the premium or no longer want the policy.
Type of Life Insurance Policies
There are three main types of ordinary life insurance policies in Kenya.
These are undoubtedly the most common life insurance policies in Kenya. Endowment policies are for a fixed term e.g. 20 years. Most endowment policies pay out partial maturities at regular intervals and a final maturity upon the expiry of the policy term to the insured. In the event of the demise of the insured before the expiry of the policy term, the named beneficiary gets paid the sum assured. Endowment policies accrue bonuses and have a surrender value after three years of premium payment. The example of an endowment life policy in Kenya is an Education Policy.
Whole life insurance policies in Kenyan are usually up to a certain age e.g Whole Life to age 65 or alternatively, the client pays the premium for a fixed number of years and is then covered for the rest of their lives. The sum assured plus any accrued bonuses are paid to the beneficiary upon the demise of the insured person. Endowment policies accrue bonuses and have a surrender value after three years of premium payment.
Term life policies are pure life policies with no bonuses, surrender value or maturity payments. They offer a straight death benefit upon the demise of the life assured. The best example of term life policies in Kenya is credit life policies which pay the loan balance in the event a bank or mortgage customer passes away. The premium payment for credit life policies is usually bundled into the loan repayment amount.
Life insurance policies in Kenya are often sold with supplementary coverage. Some of the most common types of supplementary coverage include:
- Accidental Death Rider – Additional coverage that pays an additional amount, typically 150 – 200% of the sum assured, upon the demise of the insured person through accidental death (as opposed to natural causes).
- Critical Illness Rider – An additional sum, typically a stated percentage of the sum assured, paid to the insured person upon diagnosis of a critical illness specified in the policy.
- Permanent and Total Disability Rider – Additional coverage that pays an additional amount, typically 150 – 200% of the sum assured, upon the permanent and total disability of the insured person.
- Waiver of Premium Rider – A feature of the policy that waives future premium payments upon the occurrence of a named event e.g permanent and total disability.
Do You Need a Life Insurance Policy?
To answer this question, you need to ask answer a few key questions:
- Do you have dependents?
- Do you have assets?
- Would the future of my dependents be secure in the event of my demise or would they need to cannibalize the assets I leave behind to get by?
- Are you interested in a forced savings scheme to fund school fees, a wedding, land purchase, retirement or anything you desire?
If you have answered in the affirmative to at least three out of four questions above, then you should definitely consider purchasing a life insurance policy.
How Much Does it Cost?
The insurance premium you pay will depend on the following factors:
- Your age.
- Your general health status. Medical examinations are typically required for sums assured greater than Kshs 5 million.
- The sum insured/assured i.e. the total coverage needed.
To purchase the policy all you will need is to complete an application form and the insurance agent will advise you on the premium payable. Once the insurance company accepts the policy, you will be issued with a policy document.