Life cover will cushion your family if you die suddenlyNot every consumer is aware of the type of individual life cover they hold, let alone their terms and conditions. Photo/FILE Not every consumer is aware of the type of individual life cover they hold, let alone their terms and conditions. Photo/FILE By JOHN NJIRU jnjiru@ke.nationmedia.com Posted Thursday, October 25 2012 at 01:00 In Summary Many households in Kenya would be vulnerable were their bread winner to die suddenly, thanks to failure to take out life insurance because prospective clients are too busy, are unsure about what the cover requires, or simply do not think that it is important SHARE THIS STORY 0 inShare In 2003, the cruel hand of death took away Grace Mutahi’s* husband, leaving her with the enormous responsibility of raising their four young children. The task before her was huge, given that her husband, James Mutahi*, was the family’s sole breadwinner. Her first born was just joining secondary school while her last born had just been enrolled in kindergarten. Until their father’s death, the children were in private schools and the family enjoyed the necessities of a middle-class home. Death threatened to unravel life for the young family unless an alternative source of income was found. Mrs Mutahi wondered how she would cope with bringing up her children without a stable income. Even if she got a job immediately, she might not earn enough to cater for their needs and maintain the lifestyle they were used to. Luckily for her, just a week after her husband’s death, she received a phone call from a man who wanted to know if she was the wife of the deceased. “He said he was my husband’s agent and that I was the beneficiary of his account,” Ms Mutahi told Money. She did not understand most of the conversation, but grasped that she was to visit the offices of Old Mutual, a life insurance provider and investment and protection group. Unbeknown to her, Mr Mutahi had taken two life insurance covers and, to her surprise, she was told that she was entitled to Sh1.8 million compensation from a policy her husband had signed three years before his death and Sh2 million payout from a cover that he had bought just two months earlier. “They told me that my husband had taken an anticipated endowment, where you take a cover and it generates savings, and I was the beneficiary. It was unbelievable,” she said during the interview. The insurance company paid the money after about a month. Ms Mutahi used the money to buy a house in Nairobi and the rest to pay her children’s fees. She has invested in similar covers and unit-linked trusts and made her four children the beneficiaries. “This is especially useful for housewives who would be left struggling to maintain the family after the husband dies,” adds Ms Mutahi. Insurance experts advise consumers to ensure that their long-term investments are set up in such a way that they would benefit their immediate family members in case of an untimely death, disability, or retirement. According to Ms Barbara Chesire, an assistant manager of products and actuarial services at CIC Life Assurance, in a developing country like Kenya, a large portion of the population is exposed to numerous risks that would be well catered with a life cover. “The events vary in degree, but the most common instances where an underwriter compensates a beneficiary is upon death of a policy holder (the consumer who entered into an agreement with the company) or during a critical destabilising illness, whether terminal or an accident leading to disability,” she says.

Not every consumer is aware of the type of individual life cover they hold, let alone their terms and conditions. Photo/FILE 

By JOHN NJIRU jnjiru@ke.nationmedia.com
Posted  Thursday, October 25  2012 at  01:00

In Summary

• Many households in Kenya would be vulnerable were their bread winner to die suddenly, thanks to failure to take out life insurance because prospective clients are too busy, are unsure about what the cover requires, or simply do not think that it is importantinShare

In 2003, the cruel hand of death took away Grace Mutahi’s* husband, leaving her with the enormous responsibility of raising their four young children.

The task before her was huge, given that her husband, James Mutahi*, was the family’s sole breadwinner.

Her first born was just joining secondary school while her last born had just been enrolled in kindergarten.

Until their father’s death, the children were in private schools and the family enjoyed the necessities of a middle-class home.

Death threatened to unravel life for the young family unless an alternative source of income was found.

Mrs Mutahi wondered how she would cope with bringing up her children without a stable income.

Even if she got a job immediately, she might not earn enough to cater for their needs and maintain the lifestyle they were used to.

Luckily for her, just a week after her husband’s death, she received a phone call from a man who wanted to know if she was the wife of the deceased.

“He said he was my husband’s agent and that I was the beneficiary of his account,” Ms Mutahi told Money.

She did not understand most of the conversation, but grasped that she was to visit the offices of Old Mutual, a life insurance provider and investment and protection group.

Unbeknown to her, Mr Mutahi had taken two life insurance covers and, to her surprise, she was told that she was entitled to Sh1.8 million compensation from a policy her husband had signed three years before his death and Sh2 million payout from a cover that he had bought just two months earlier.

“They told me that my husband had taken an anticipated endowment, where you take a cover and it generates savings, and I was the beneficiary. It was unbelievable,” she said during the interview.

The insurance company paid the money after about a month. Ms Mutahi used the money to buy a house in Nairobi and the rest to pay her children’s fees.

She has invested in similar covers and unit-linked trusts and made her four children the beneficiaries.

“This is especially useful for housewives who would be left struggling to maintain the family after the husband dies,” adds Ms Mutahi.

Insurance experts advise consumers to ensure that their long-term investments are set up in such a way that they would benefit their immediate family members in case of an untimely death, disability, or retirement.

According to Ms Barbara Chesire, an assistant manager of products and actuarial services at CIC Life Assurance, in a developing country like Kenya, a large portion of the population is exposed to numerous risks that would be well catered with a life cover.

“The events vary in degree, but the most common instances where an underwriter compensates a beneficiary is upon death of a policy holder (the consumer who entered into an agreement with the company) or during a critical destabilising illness, whet

Life insurance is an agreement between a consumer and an insurer, where the company promises to pay an agreed amount of money to a stated family member when an unfortunate event happens.

But not every consumer takes time to understand the benefits of an insurance cover, especially life.

Group covers

Many Kenyans enjoy basic life cover through their employers in group assurances and pension schemes.

Some employers organise schemes to benefit their workers, thereby lessening the burden that may come about in case of sudden ailments or death.

Group credits or mortgage schemes come in handy when a consumer is unable to pay a loan or a mortgage as a result of permanent disability or death.

“The insurer comes in to pay the balance of the mortgage, allowing the dependants to continue living in the house without the threat of auction,” said Metropolitan Life’s James Oyugi.

However, the comfort that group cover brings has made many consumers to ignore or disregard individual life policies.

Unfortunately, group cover only applies during a person’s working life in a company or until his retirement.

As a result, the cover may not be adequate to secure the expenses of family members upon the death of the employee.

Market players are a worried about the apathy of most Kenyans towards insurance, given the rising risks.

“Look at Kenya. Everyday people are being exposed to risks. Where we sleep, the modes of transport we use, the food we eat… everything is a risk,” says Birian Akwir, the Association of Kenya Insurers’ (AKI) technical manager.

People with individual cover comprise 33.9 per cent of the Sh30 billion life markets in terms of gross premium written.

According to Ms Chesire, life insurance is categorised between two basic classes — the temporal and permanent form of cover.

But not every consumer is aware of the type of individual life cover they hold, let alone their terms or conditions.

This is because consumers rely on agents, who are allied to specific insurance firms and therefore distribute specific products to meet certain interests.

“We see situations where potential consumers are assisted to fill in insurance forms. How does the agent know the health history of a person, or what the client wants before engaging him or her to prudently fill in the forms?” says the industry’s commissioner-general, Mr Sammy Makove.

Such misunderstandings end in acrimony when it is time to pay claims or when a consumer wants to pull out.

her terminal or an accident leading to disability,” she says.

For instance, if a consumer dies five years after signing a 50-year policy, the first thing the insurer looks at is the cause of death.

If it discovers that the consumer had a terminal illness before taking up the cover or any debilitating form of disadvantage and he or she did not put it in writing or the agent filled in contrary information, an insurer will not be obligated to compensate.

Also, the consumer may feel that the premiums are too high and want to abandon the cover.

Unless they understand the details of the contract with the insurer, consumers may never learn why they are not compensated for the period they paid for the product.

“The client should be given an array of products, ranging from endowments, term life, funeral covers, and unit-linked investments to choose the level of cover, riders, or premium that best suit him or her,” adds Ms Chesire.

Many people prefer temporary cover — term insurance — compared to whole life policies because of cheaper quotations, that is the overall pricing of a product.

Term policies are usually set to a certain period, say 20 years. If a misfortune happens to the consumer within that time, the insurer compensates the beneficiaries.

But in the absence of any tragedy during the 20 years, the investment does not accrue any returns.

A positive outlook in this is that the consumer is not subjected to further payment of premiums until his or her demise.

Permanent policies come with many riders, that is, several compensating policies, and a pool where a customer may be promptly compensated for pulling out of the policy — the cash value.

If a consumer buys this cover, it means that they are entering into an agreement where the insurer will compensate the family in case of death, whether it occurs before maturity of the cover or not.

That is a heavy responsibility, for no one knows the exact day or time of one’s demise.

Because of this responsibility and the high level of uncertainty, insurers devise ways to have sufficient money in their coffers to meet both the cost of their shareholders and the beneficiaries of the policy holder.

That is the reason life policies have an element of investment.

“Life insurance funds are invested in various instruments, as stipulated in the Insurance Act. Optimal investment is important to ensure that future liabilities are matched with assets,” says Ms Chesire.

For a life insurer, this fund acts as a buffer for any uncertainties. Let us take the example of a client taking Sh2 million cover against his life for a period of 40 years, which we may term as the sum assured.

This will be the guaranteed amount of money that a beneficiary will get upon the client’s death.

The policy holder will pay a deposit of, say, Sh300,000 and a set amount of premiums that will stretch during the 40 years, according to the agreement with the company.

The premiums will be pegged on several factors, including the age of the client, his lifestyle, gender, or the nature of his job.