Life Insurance is a contract between an insurance policyholder and an insurer. The policyholder pays the policy premium and the insurer promises to pay a sum of money to a beneficiary designated by the policyholder if the insured event (usually death) occurs. Depending on the contract, events such as terminal illness or critical illness may also trigger payment. The main benefit of life insurance is that the financial interests of one’s family are protected from circumstances such as loss of income due to critical illness or death of the policyholder.
Life Insurance Covers
Life Insurance covers consist of Term Life, Endowment and Whole Life Policies etc. You can benefit from such products as they have a cash value (except term policies) which increases every year as you pay premiums. Some traditional life policies are participating, meaning they acquire bonuses, but also the premium on life insurance is level throughout the term of the policy.
Term Assurance: This policy offers you protection for a limited period. It is the cheapest and simplest type of life insurance since it provides life cover only with no investment benefits. The insurance company will pay the full sum assured if the policyholder dies within the period they are insured. If the policyholder survives and the policy matures, no benefits are paid out.
Endowment: An Endowment Policy combines both protection and investments. The insurance company will pay the full sum assured if the policyholder dies within the period they are insured. If the policy holder survives and the policy matures, the insurance company pays out maturity benefits including all the bonuses earned during the course of the policy.
Whole Life: A Whole Life Policy protects the insured for their entire lives and premiums are paid throughout one’s life, as a single premium or until a given age e.g. 60 years of age.
Unit Linked/Investment Insurance Policies: In a Unit Linked Policy, a part of the premium is used to buy life insurance protection and the rest is used to buy units in an investment fund managed by the insurance company. The price of the units is based on the net value of the fund at the time of buying. The return on the policy depends on how the investment fund performs.
Pure Risks Policies: Term Assurance policies, Whole Life Assurance policies & Mortgage Protection plans.
Savings Policies: Personal Saving plans, Guaranteed Savings plans, Unit Trusts, Individual Retirement plans, Annuities and the various types.
Combination of Savings and Risks Policies
Endowment Policies: an example is a school fees insurance policy. This is essentially an endowment policy that combines both protection and investments. The insurance company will pay the full sum assured with bonus (which can be used for education of the beneficiary in the policy) if the policyholder dies within the period they are insured. If the policy holder survives and policy matures, the insurance company pays out maturity benefits including all the bonuses earned during the course of the policy which can be used for the same purposes.
School Fees Insurance Policy
This is essentially an endowment policy that combines both protection and investments. The insurance company will pay the full sum assured with bonus (which can be used for education of the beneficiary in the policy) if the policyholder dies within the period they are insured. If the policy holder survives and policy matures, the insurance company pays out maturity benefits including all the bonuses earned during the course of the policy which equally can be used for the same purposes.
Individual Life Insurance Policy Riders
These are the options to customize life policies to accommodate personal needs of policy holders. Riders are the most common way a policyholder may modify their plan.
The Accidental Death benefit rider provides additional life insurance coverage in the event the insured's death is accidental.
The Waiver of Premium Rider ensures the waiving of premiums if the policyholder becomes disabled and unable to work.
The disability income rider pays a monthly income in the event the policyholder becomes disabled.
Upon diagnosis of terminal/critical illness, the accelerated death benefit rider (ADB) allows the insured to collect a portion or all of the death benefit.
Last expense: This policy is meant to cater for the funeral expenses of the policyholder or their loved ones. The benefits are paid within forty-eight (48) hours of notifying the insurance company. Normally this is sold in addition to any of the above.
Group Life Insurance
This is a Life Insurance cover that any group can undertake.
It is a key benefit that employers offer employees. It is usually issued in the name of the employer who usually pays the premium. As with other types of group benefits, Group Life Insurance is generally cheaper compared to individual policies. SACCOs and investments groups also take Group Life Insurance and members pay the premium.
What is covered under Group Life Assurance?
This policy is mainly taken out by the employer and it covers mainly death from any cause (natural, illness or accident) of the employee. Other optional benefits include permanent total disability cover, last expense cover and a critical illness cover.
What is Pension?
Pension is a regular payment that is made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life.
A pension or retirement benefit scheme is a form of insurance against the risk of poverty in old age by ensuring that they are able to provide for themselves in retirement.
What is a Personal Pension Plan/Retirement Plan?
This is a vehicle or service offered by insurance companies to build up a sum of money that can be used upon retirement. The money you put in is invested to generate a regular income referred to as pension.
How do I save for Retirement?
Through; Employer Sponsored Schemes commonly known as Provident Funds, Individual Pension Plans & Government Sponsored Plans.
What is Annuity?
This is a contract between an individual and an insurance company where the individual pays a premium and the insurance company pays an income to the individual for the rest of their life after retirement.
What are the types of Annuities?
Deferred Annuity – This type of annuity is for people who would like a guaranteed income after retirement but still have working years ahead of them and therefore do not need it to start right away.
Immediate Annuity - In this annuity, the income payments begin within 12 months after you buy the annuity. This is a suitable annuity for those who are about to retire or have already retired. The premium is paid as a lump sum at the time of purchase.
Funeral Insurance
This is an insurance policy used to pay for funeral expenses upon demise of the insured. It can be purchased as a stand-alone product or as part of life or general insurance. Funeral insurance is renewed annually.
Packages from different funeral companies: Life Plans – Cash payment on death, Medical – Cash payment on hospitalization & Funeral Insurance - Either payment of cash or provision of service.
What are the benefits?
Upon death of the insured, the insurance company honors the claim by either paying cash to the appointed beneficiary or provides a burial service.