Personal Life Insurance
Life insurance is a contract between an insurance company and an insured (customer). Life policies can either be for protection against the insured event or can be an investment where the aim is to save and grow your money.
The insured pays the premium and the insurer promises to pay a sum of money to an appointed beneficiary when the insured event occurs. Depending on the type of policy one takes, events such as terminal or critical illness, death and disability triggers payment of benefits promised under the contract.
Importance of life insurance
Life insurance plans protects the financial interests of your family. It also provides financial support in the event of critical illness, disability or sudden death.
It also act as a long-term investment that will help you meet your goals such as children’s education, your children’s marriage, building your dream home, a relaxed retirement life or any other goal.
Life assurance plans premium or contributions are tax exempt by Kenya Revenue Authority. A tax relief of 15% for a maximum of Ksh60, 000 premiums per year (Ksh5, 000 per month).
There are different types of life insurance policies, its best that you choose the policy that best suits you, and your future needs. Some of the things you should understand are: The scope of the cover period, the various terms and conditions and the premium payable. It is important to contact the insurance company or agent for more details and guidance.
Types of Life Insurance Cover:
a) Term Assurance
This policy offers protection only for a particular period which is agreed upon by the insurance company and insured. It is the simplest and cheapest form of life insurance since it provides life cover only with no investment benefits.
The insurance company will pay out the full sum assured if the insured passes away within the insurance period. There are no benefits that are payable if the insured is still alive when the policy matures.
An endowment policy combines both protection and investment. The insurance company will pay out the full sum assured if the insured passes away within the insurance period. If the insured is still alive when the policy matures, the insurance company will pay out the sum assured and all the bonuses earned in the course of the policy.
c) Whole Life
A whole life policy offers life-long protection to the insured. The insured selects how they would like to pay premiums. It could be throughout your life, you can chose to cease payment at a particular age (for example at 60), or you can chose to pay one single premium.
d) Unit Linked / Investment insurance policies
Unit linked policies also combine protection and investment. A part of the premium is used to purchase life protection and the rest is used to purchase units in an investment fund managed by the insurance company.
Investment returns on the policy are linked to the investment performance of the managed fund.
e) Funeral Insurance cover
Funeral Insurance cover is meant to cater for funeral expenses of a insured or their loved ones in the event of their demise. The benefits are payable within 48 hours after notification of death.
How to buy a life insurance policy?
Before buying a life insurance policy it is important to evaluate your needs and goals as well as those of your family. Once you have your needs and goals, you will be able to select the type of cover that suits you.
Next, it is important to talk to an insurance agent or visit the company of your choice to find out the policies they offer and the terms and conditions for each policy.
You can choose to purchase a life insurance policy directly from a life insurance company or through an insurance agent. Applying for a life insurance policy is a simple exercise.
When taking out life insurance there are several things that you need to look out for including: The Policy document, the policy term or period, the amount of premium and the frequency of payments, and the bonus (if any).
Other things to look out for are cancellation clauses, the cash surrender value the amount the insurance company will pay you if you cancel your policy after 3 years but before maturity.
The policy loan (you can take a loan from the insurance company against your policy after an agreed period).
Factors determining premium payable
Age, occupation and general health status. Sometimes gender and lifestyle (e.g. smoker
vs. non-smoker) also influence premium rate.
What is a Policy Document and what does it contain?
A life insurance policy document is a formal contract that the insurance company gives to the insured. It serves as legal evidence of the insurance agreement and sets out the exact terms on which the life cover has been provided. It outlines details such as:
The type of policy, the name and address of the insured and the insurance company
The event upon occurrence in which the benefit becomes payable
Duration of cover
Amount of premium and frequency of payment
The sum assured and other benefits Contact the company in case you have not received your policy document within one month of signing up for the cover.
It is very important to read your policy document and contact the company on any area that is not clear.
Grace period for review of policy document you may cancel your life insurance by returning the policy document to the insurance company within 15 days after you receive it if you feel that it does not reflect what you agreed upon when buying the policy.
The premium that you have paid (less any medical fees incurred) is refundable.