Life Insurance In Kenya: Your A-Z Guide!

You’ve probably heard that life insurance is a scam or not worth the investment. These myths are some of the barriers standing between you and financial freedom.

Life insurance is a legal agreement and financial plan that allows you to utilize policies after a certain period or in case of death. How your policy works depends on the type of life insurance and the insurance company you choose.

When applied right, life insurance is a powerful financial tool that can sort out most if not all your/family’s problems. It plays multiple roles that would otherwise cause financial stress and conflicts.

To help you make better financial decisions I will cover the following:

  • The definition of life insurance
  • Types of life insurance in Kenya
  • Life insurance myths
  • Benefits of life insurance
  • Factors to consider when choosing a life insurance policy
Life insurance in Kenya

Let’s take an inside look!

What Is Life Insurance?

If you never joined a business class in high school or pursued business-related courses in higher education, you’re probably unfamiliar with life insurance.

So, what is life insurance? 

Life insurance is a contract (what most refer to as a binding agreement) between an insurer and an insurance policyholder. Typically, the insurer guarantees the policyholder a payment in exchange for a premium when the policyholder/insured dies or after a specific period.

Note the insurer is what we refer to as the insurance company.

Types of Life Insurance

Life insuranace company

There are over 6 types of life insurance, however, I will cover the most basic and common in Kenya.

1️. Term Life Insurance

Life insurance offers coverage for a limited period, for instance, 10, 20, or 30 years. 

Typically, you as the policyholder select one of the periods or terms. During this period you make monthly premium payments.

If you pass away before the term elapses in a way that doesn’t violate the contract, your beneficiaries receive the payment.

However, the coverage ends if you don’t pass away during this term unless you renew it.

2️. Whole Life Insurance

The whole life insurance provides coverage for the rest of your life on condition that you pay your premiums.

This coverage has a fixed premium payment and a constant death benefit.

The two values are computed during the initial sign-up and hold as long as you keep your policy active through premium payments.

Once you pass away, your death benefit is paid to your beneficiary.

This insurance is unique since it has a cash savings value where part of your premium is channeled. This way, you can borrow against it.

3️. Endowment Life Insurance

The endowment life insurance provides life cover and a growing savings plan.

In this case, you will pay the premium without fail and get paid at the maturity date or when you pass away.

Although it’s the most expensive of the 3, it allows you to combine death benefits and returns on your savings. 

Typically, you choose how long you want this coverage to last. 

If you pass away during the term your beneficiaries receive the payment. If you don’t you receive a huge payout from your insurance company.

Key Roles of a Life Insurance 

Life insurance has one purpose—To replace Income When You Die.

Imagine this: If you were to pass away unexpectedly, how would your family cover their living expenses without getting into serious debt?

Life insurance eliminates that risk and provides the peace of mind for you and your loved ones.

With this safeguard in place, you can be assured that if the worst happens, your family will be financially secure. Here are 5 key roles that life insurance plays:

1. Financial Security For Your Loved Ones 

Life insurance ensures that your family can maintain their standard of living, pay off debts, and cover daily expenses. It’s a crucial safety net, especially if you are the primary breadwinner.

2. Pay Off Debts And Loans 

Life insurance can help pay off outstanding debts, including mortgages, car loans, and credit card balances. This prevents your family from being burdened with financial obligations during a difficult time.

3. Cover Funeral and Burial Expenses 

Funerals can be expensive, and the last thing you want is for your family to worry about these costs. Life insurance can cover these expenses, ensuring your loved ones can grieve without financial stress. 

4. Fund Your Children’s Education 

A life insurance policy can ensure that your children’s educational needs are met, from school fees to college tuition. This can secure their future and help them achieve their dreams without financial barriers. 

5. Peace of Mind 

Knowing that your family is financially protected gives you peace of mind. Thanks to life insurance it provides a sense of security, allowing you to live your life with the assurance that your loved ones will be taken care of no matter what happens.

Life Insurance Myths

A young man  next to an insurance company's entrance

False beliefs are the leading cause of lost financial opportunities in African countries. This is because citizens in countries such as Kenya possess limited information regarding such opportunities.

Life insurance has been on the receiving end of these negative opinions, making it the least explored financial tool.

So, what are the life insurance myths that stop most Kenyans from safeguarding their future and family?

I. Life Insurance Is For Rich People

As of 2020, the number of life insurance holders was 1.27 million out of a total population of 51,985,780. Amongst those with this coverage are high-income earners, leaving us with the question – do low and middle-income earners think they cannot afford a life insurance policy?

Unfortunately, this is a lie that has robbed most of us of an opportunity to save our families from unnecessary financial pressure when we pass on. Truth be told, some insurance companies offer policies with as low as 2,000 Kenyan shillings as the premium charge.

II. Life insurance Is a Waste of Financial Resources

From shares and Money Market Funds to Bonds, all physical and digital investment opportunities grow your money, making them worthwhile to venture into.

On the contrary, life insurance compensates you or your beneficiaries when the risk concerned occurs. Hence, most people consider it a waste of money and time.

What we don’t see is how essential such a policy is as it provides an income replacement that can cover your family’s financial needs when you are gone.

III. Life Insurance Is for Old People

Since most life insurance covers benefit the dependants, young people think they don’t need to get one as they have zero to few dependents. Unfortunately, they miss out on the insurmountable financial benefits that come with this cover.

In addition, acquiring life insurance at a young age allows you to take advantage of lower premiums as compared to old people. Remember, your premiums are determined through certain factors including age, health, duration, and policy duration.

Why Should You Get Life Insurance?

Although not highly embraced in Kenya, life insurance plays a great role in our family’s finances. It provides insurmountable financial support in the most needful times. 

If you’ve never considered applying for one, here are 5 reasons why you should get life insurance:

1️. Wealth Preservation

The agreed payment amount with your insurer is usually tax-free. Hence, there are no transfer costs or taxation during the payment process.

Moreover, it is a final directive that cannot be contested in court.

This means that the person you state as your beneficiary will receive the payment and you can be assured of wealth preservation.

2️. Income Replacement 

I’m sure you’ve heard or witnessed children dropping out of school and families kicked out of houses once the breadwinner passes away.

To avoid this, most financially savvy people get life insurance that will ensure their family is well taken care of.

Life insurance offers payment in installments or one huge amount, allowing your family to pay for tuition fees, debts, and family needs.

3️. Guaranteed Cash Value Growth

As you continue to pay your premiums, your cash value grows gradually.

Hence, your family can receive a lump sum payment to cover demanding financial responsibilities such as:

  • Mortgage
  • Your children’s or grandchildren’s education
  • Protect existing assets
  • Supplement your retirement income 

Moreover, the payments are usually tax-free, so your proceeds won’t be deducted.

4️. Add-On Riders

Some life insurance policies allow you to add riders to your coverage at a small additional fee. 

A rider refers to extra protection in case of an unexpected occurrence, for instance, disabilities, accidents, surgery, hospitalization, or diagnosis of critical illness.

The add-on riders can help your family or you as an investor cope with such financially demanding scenarios.

5️. Investment Diversification

Life insurance is one of the rare investments with extremely low risks.

As a result, if your present investment portfolio needs a stable and low-risk addition, getting life insurance will help you limit your exposure to risks.

However, you must be ready to settle your premiums regularly so that your returns on investments are guaranteed. 

Factors To Consider When Choosing a Life Insurance Policy

A building with a life insurance identification

There are many insurance companies providing life insurance coverage. Again, life insurance policies come in different sizes and shapes. 

As a result, you have to be careful when choosing a policy to invest in to avoid losses. If you’re looking for the right coverage here are a few factors to consider:

I. The Premium 

You’ve heard people claim that insurance companies robbed them after they failed to pay premiums for a certain period. The truth is the insurer never robbed them, they just followed the agreement.

The agreement binds you to make full premium payments to the insurer. Fulfilling this gives you a right to the payment when the policy matures. However, failing to pay premiums means you’ve breached the contract and therefore you cannot receive payment.

So, before you choose an insurance policy analyze the premium and confirm it is affordable for you to pay without failure. This will guarantee you compensation if the circumstances binding the agreement happen.

II. Choose an Established Insurance Company

Do you know the insurance company you’re planning to invest in?

Are they a renowned insurer with a good reputation?

Before you rush to put your money in an insurance company, ensure they have handled numerous cases like yours. Also, confirm that they keep their word and provide top-notch services to their clients.

You don’t want to get into a contract with an insurer today then after a few years they collapse and exit the market with your hard-earned money.

IV. Be Acquainted With The Industry’s Terms

Terms such as surrender value, sum assured, and cash value can be confusing if you’re not familiar with the industry’s diction. Unfortunately, this leads to misunderstanding the policy’s terms and conditions.

Hence, you must learn what every term in the contract means before getting into a financial trap. Instead, evaluate the offers to settle for a policy that matches your financial needs.

Ready To Get Life Insurance?

Now that you’ve learned the numerous benefits of getting life insurance, are you ready to find one?

If yes, then feel free to book a session with me at 0703472299 or centwarriors@gmail.com so I can guide you through the entire process. 

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Written by Alex

Written by Alex

I have passion in helping people Make, Manage, Multiply & Protect Wealth.Download my Free Guide to Financial Freedom >>[ GET IT HERE]<<