The Ultimate 3-Step Guide to the Best Life Insurance in Kenya

March 7, 2024 LIFE INSURANCE IN KENYA

When getting the best life insurance in Kenya, a comprehensive need analysis is needed. Previous experience with life insurance in Kenya hasn’t been the best. After collecting a lot of feedback from existing clients we have decided to develop the ultimate guide to getting the best life insurance in Kenya.

Why life insurance in Kenya?

Life insurance in Kenya tends to be a bit misunderstood therefore today we shall look at some of the reasons why you need this guide to get the best life insurance in Kenya. There are however three essential facts about life insurance in Kenya we need to understand before we proceed:

1. Life insurance policies are not an on-demand financial product.
2. Life insurance policies are not investment products or investment replacement products but can be used to protect your investments.
3. You can take more than one life insurance policy subject to your needs.

What are some of the reasons why you will need life insurance in Kenya?

Protection

If you run a business, have a family or any dependants, a life insurance policy will provide a financial safety net that would be of great benefit to them in the event of your death. With a life insurance cover in place, a lump sum payment that is tax-free is made available to your dependants as long as all premiums are up to date and no pending insurance loans are attached to your policy.

Tax Benefits

Some of the best life insurance in Kenya tax benefits include:

1. 15% tax relief on all your monthly premiums up to a maximum of 5,000/= a month that you can claim during your annual tax filing. This option is available on policies that are longer than 10 years. However, some insurance companies have been able to negotiate even for short-term policy length.
2. All benefits accrued on your life insurance cover upon death are paid to your beneficiaries and next of kin tax-free.

Act as income replacement

What would happen to your family if your income or your business disappeared? With a whole life insurance in Kenya you can ensure

1. Any mortgage debt is paid up.
2. Your family can still afford medical care, child care, and other crucial services.
3. Your child’s education or college expenses are met.
4. Any debt you have is cleared.
5. The continuity of the business that you have already established.

Great life insurance riders

Some of the best life insurance in Kenya optional riders include:

1. Critical Illness Rider: This provides a lump-sum payment in the event of a first diagnosis of a critical illness. The types of critical illness will be mentioned in your policy.
2. Personal Accident Cover: This rider can provide of double benefit payout following death through an accident. It also provides benefits in the event of permanent total disability following an accident.
3. Waiver of Premium Rider: Following either permanent total disability or diagnosis of a critical illness, this rider ensures your life cover stays in place but you will not pay more premiums.

Best life insurance in Kenya: How much life insurance do you need?

You have probably been told life insurance is a good place to start when it comes to your wealth protection. “How much do I need to ensure have provided enough protection?” is your next question.

There are three most commonly used methods used to determine how much life insurance you need:

Best life insurance in Kenya: Estimate Method

This will consider everything you have, so get a total of your financial obligation less any liquid assets

Step 1: Add all your financial obligations:

1. Your annual salary × number of years you would like to replace it for.
2. Your mortgage loan balance if any.
3. Any other unforgivable loans such as student loans, credit card loans, and Sacco loans name them.
4. Future estimate cost of your children’s education
5. Estimated funeral costs
6. Estimated replacement cost of non-financial contributions provided by a stay-at-home parent.

Step 2: Subtract all your liquid assets

1. From that subtract all liquid assets such as savings, any current life insurance policies, pension fund, schooling fund if any.
2. The number left would be the ideal amount of life insurance you need.

Best life insurance in Kenya: 10 Times Your Income

This is one of the most commonly used methods that says to take your monthly income multiplied by 12 and then that figure with 10

(Monthly Gross Salary × 12 ) × 10

e.g

(50,000× 12) × 10 = 6,000,000

This is a great place to start however, some of its disadvantages are:

1. It does not take into consideration the financial needs of the family.
2. It does not consider the non-financial contributions of a stay-at-home parent. As this parent would need to pay for someone else to do the work they used to do.
3. It does not take into consideration any other existing insurance policies and liquid investments.

Best life insurance in Kenya: DIME Formula

This is our favorite formula and for some good reasons. DIME is an acronym for Debt, Income, Mortgage, and Education. It considers these four areas

1. Debt: What debt do you have that must be paid even in death? Helb loans, credit card loans, Sacco loans name them.
2. Income: You will need to decide how many years you will need to provide income for your family for
3. Mortgage: Looking into how mortgage loan that is remaining and not insured.
4. Education: The estimated cost of your children’s education.

Nerdwallet has a detailed write-up on the other ways in which you can calculate your life insurance amount.

The various types of life insurance and the best possible purpose

There are several types of life insurance policies in Kenya.

1. Endowment: Pays out either at maturity or upon death whichever comes first. The most expensive life insurance with very low maturity interest/dividends paid out. Best used for planning purposes, especially for the purchase of physical assets, and provide a lump sum in addition to your pension fund while still providing protection
2. Whole Life: A plan that pays out only in death. Depending on how long you want to pay for it, it is a mid-cost life insurance policy plan. You can opt to pay for 10 years, 15 years, 20 years, 60 years, until 65, or a lifetime. It is a mid-cost cover slightly cheaper compared to an endowment cover. It is also called permanent life insurance. This policy is best taken for protection, liquid inheritance, and income drawdown.
3. Term Life: It is cheaper than the whole life and endowment life insurance policy. It offers purely death benefits if death occurs within the duration of the insurance period. This product is the best taken as a mortgage protection or key man insurance.
4. Critical Illness Cover: This purely offers cover in the event of the first diagnosis of a major critical illness. The list of illnesses covered will be mentioned in your policy. The payment will be made in a lump sum amount.
5. Funeral cover: This policy offers purely benefits at death to contribute towards funeral costs. Any amount left over and above can be used at the discretion of the family
6. Hospicash: This type of life insurance policy offers benefits following hospital admission and it kicks in to replace your daily income for the days you will be incapacitated. The policy is ideal for solo entrepreneurs or people who without them, their family has no income available.

What are the factors to consider to help you get the best life insurance in Kenya?

Now that we have discussed why you need life insurance and how much you need, let us discuss the factors you need to consider to enable you to get the best life insurance in Kenya.

1. Establish why you need life insurance. Is it for income replacement, paying off debts, or inheritance for your loved ones?
2. Know how much protection you need using any of the above methods discussed.
3. Decide how much you can afford. Remember all the above two points can help you plan. You can take more than 1 life insurance policy subject to affordability.
4. Get the right policy. This means understanding if an endowment plan, whole life, or term life insurance makes the most sense for you. If you don’t know what any of these are, book a free consultation with us.
5. Understand the insurance language, surrender value, premiums, rider, and paid-up policy, It can be complex but we have created a multitude of resources to help you know what each means.
6. Check out your insurer. An insurance policy is only as good as the insurance company behind it. The best life insurance policy in Kenya will always come from a company with a good track record of paying claims, strong financial muscle, and keeping its promises.

Best life insurance in Kenya policy anyone? We will not let you drown. We compare life insurance companies that meet your needs and will walk with your family or business at their point of need.