The most common types of insurance are listed below. However, there are many more types of insurance covers.
Our insurance guidebook will provide you with more information.
Common Types of Insurance
The most common types of insurance are listed below. However, there are many more types of insurance covers.
Life insurance is a long-term contract between an individual (policy holder) or organisation and an insurance company.
The insured pays the premium and the insurer promises to pay a sum of money to an appointed beneficiary when the insured event occurs. Insured events that trigger payment from the life insurance cover include death, critical illness, terminal illness, temporary or permanent disability. Other expenses such as funeral expenses may also be covered. Read the contents of your life insurance policy to know what is covered.
Life insurance can either be for an individual or it can be taken out for a group of people such as employees, a chama, a SACCO, or a large extended family. The policy document in the case of a group will bear the name of the group as the entity that is paying the premium. Group life is generally more affordable compared to individual policies.
There are three broad types of Life Insurance Covers:
- 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.
- 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 stop payment at a particular age (for example at 60), or you can chose to pay one single premium.
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.
This an insurance policy used to pay for funeral expenses. It covers the insured including their nuclear family i.e. spouse and children. It can also be extended to cover parents or siblings.It can be purchased as a stand-alone product or as part of another insurance product.
The amount of premium payable determines the sum assured.
Upon demise of the insured or any of their immediate family members, the insurance company pays the claim to the appointed beneficiary within 48 hours of receiving notification and relevant documentation
A Personal accident insurance cover provides financial benefits to an individual if he/she is involved in an accident resulting in injuries or death. While, group personal accident insurance provides financial benefits to a group of people such as a family, employees, chamas, learning institutions, SMEs or any other group of people with common interest.
Drivers of motor vehicles are encouraged to take personal accident insurance since they are not covered under the motor insurance whether third party or comprehensive.
Medical insurance, also referred to as health insurance, covers the medical expenses incurred by the insured or their dependents. It can be taken by an individual or a group of people.
The policy can be out-patient (walk in and out of hospital) only or in-patient (admission) only. It can also have a combination of both in and out patient.
Each medical insurance cover is different in terms of the medical treatments it can cover and the limits of coverage. This also determines the premium paid.
Most medical insurance policies can be extended to cover additional benefits such as optical and dental cover, congenital defects, maternity expenses, pre-existing conditions, chronic ailments, psychiatric conditions among others.
Most covers exclude cosmetic surgery or treatments, age related senility or insanity, family planning and treatments not administered by a registered medical practitioner. It is therefore very important to first shop for a policy that meets your needs and then review the policy document together with your insurer to ensure you have clearly understood what is covered and what is not covered.
Travel Insurance covers specific events during the course of travel. Covered risks and exclusions vary significantly by policy type, insurer, and travel preferences. The risks typically covered include;
• Trip interruptions
• Cancellations (entire trip or a section of the trip)
• Lost or delayed baggage
• Carrier or service provider failures
• Emergency evacuations (due to physical threats and medical emergencies)
• Theft and other crimes
• Medical treatment for injuries caused due to travel
• Accidental death (including transportation of remains)
The risks typically not covered include;
• Natural disasters
• Severe weather
• Crimes committed against you or a member of your traveling party
• Lost travel documents or identification papers
• Civil unrest
• Unannounced strikes that render your carrier unable to operate
This policy insures the home. It is also referred to as Domestic Package insurance. It combines coverage for the home that is, the building and household contents as well as domestic workers against death or injury while in the course of employment. The policy also covers the homeowners or occupiers against lawsuits for injury or property damage caused to other people (third parties).
Home insurance can be taken out by a tenant, a home owner or a landlord.
What does Home insurance cover?
Home insurance policy has five (5) sections, A to E, each covering different risks as broken down below;
- Section A – Cover for the structure (building) of your home against risks such as fire, floods, earthquake Section B – Cover for your personal belongings or contents such as electronics, jewellery, art, clothes, furniture and others against risks such as theft, fire, floods, earthquake, e.t.c
- Section C – Cover for items you move with outside the house such as mobile phones, watches, IPads, laptops, rings, cameras, spectaclesagainst risks such as accidental damage, theft, fire, floods, earthquake, etc. This section is also referred to as All Risks
- Section D – Liability protection, this covers domestic workers for injury or death while undertaking domestic work.
- Sections E and F – Coverage of owners and occupiers against lawsuits for injury or property damage caused to other people within the property or by objects or actions originating from the property.
You can chose which of the sections you wish to take-up depending on whether you are a tenant, living in your own home or are a landlord.
Can I purchase home insurance if I am renting a house?
Yes. You can purchase home insurance as a tenant for the content in the home, items you move outside with and liabilities for domestic workers and third parties.
Why is it important to take an inventory before purchasing Home Insurance?
Before you purchase home insurance, you will be required to provide an inventory. A home inventory is a list of all the things in your house including electronics, furniture, kitchen equipment and jewellery. It is important to record the serial numbers of the major appliances, keep the receipts and user manuals safely.
Having an up-to-date home inventory will help you insure the correct value of property and get your insurance claim settled faster.
How often should I review my policy?
Home insurance is an annual cover. However, if in the course of the year you make improvements to your home such as fire and burglar alarm systems, upgraded plumbing or electrical system or if you make a major purchase. Inform your insurance company about the improvements or changes.
You may need additional cover if there is a change in the value of your home or its contents.
Car or motor insurance is mandatory in Kenya. You can have either third party insurance or comprehensive insurance.
Third party insurance covers the costs of damages to others (third parties) including other vehicles, persons, but does not cover you and your vehicle.
Comprehensive insurance covers both third parties and your vehicle.
It is important to note that the driver of the vehicle is not covered in both types of insurance. Drivers are encouraged to get Personal Accident Insurance either as an optional benefit on their motor insurance or as a separate policy.
Motor insurance in Kenya is very competitive and it is therefore wise to shop around for the best deal that will meet your needs.
The insurance sticker is only proof of insurance, your motor insurance policy bears the details of the insurance. Be sure to ask your insurer for it, read it and understand it.
Motor insurance has now gone digital, remember to verify your insurance certificate when you receive it.
Pension is a form of insurance that helps one plan for life after retirement and protects against age old poverty.
Pension can be defined as a regular payment to an individual during retirement from a pension scheme towards which that individual or their employer had contributed during their working life.
- Why should I plan for retirement?
You may be young and energetic today, but with time, you will slow down and retire and thanks to advances in medicine, we now live longer.
Living expenses however do not retire. You will still need to eat, go to hospital, pay for utilities (water, electricity, cooking gas), medical bills, housing and others.
Planning for retirement helps us have an income that will cater for these expenses and ensure that the quality of life in old age is still as good as when one was active.
- How do I save for retirement?
There are structured ways of planning for retirement as explained below:
Employer Sponsored Schemes– These schemes are formed by the employers for the benefit of their employees. It is not compulsory for employers to form pension schemes, however, employees can come together and form a scheme.
Individual Pension Plans– These are offered by insurance companies. Both employed and self-employed people can join individual pension plans.
Government sponsored plans – The National Social Security Fund (NSSF) provides basic financial security to Kenyans upon retirement. Contribution is compulsory for employers and employees. However, the benefits paid out are often not sufficient to provide for comfortable retirement.
- What are the benefits of joining a pension’s scheme?
- The contributions have a 100% capital guarantee. Retirement benefits schemes managed by insurance companies guarantee that your funds will not be lost. They also guarantee a minimum rate of return.
- Contributions are flexible depending on your financial ability and needs.
- Contributions are easy to make through deductions from your salary, direct debits, Mobile money etc.
- The fund earns compound interest. This allows contributions to grow into significant retirement savings over time
- It gives one the discipline to save and improve financial security in his/her retirement
- It offers a pooling advantage. Funds from various members are pooled together to form a huge fund that allows a larger scale of investments resulting in higher returns.
- The current Retirement Benefits Authority (RBA) laws allow one to utilise up to 40% of their fund to purchase a home.
- The accumulated fund plus investment income are paid to beneficiaries upon the death of the insured, providing a financial cushion for them
- Withdrawal terms are flexible
- An employer can contribute on behalf of the employee as long as the combined contributions do not exceed 30% of the employees’ salary.
- Provides various flexible payments to a member at retirement i.e. Lump sum, pension/Annuity and even the option to keep the savings invested and draw an income from it.
- What happens when I retire?
If it’s a pension scheme, you are allowed to take 1/3rd of the total pension fund as cash at the time of retirement. The remaining 2/3rds of the fund is converted into a monthly pension which is paid to you at the end of every month. For the rest of your life.
If it is a provident scheme, then the entire fund (subject to applicable taxes) is paid to you as a lump sum upon retirement.
Planning for retirement is also important given today’s economic realities where it will be difficult to rely on other people for your daily needs. The family unit is weakening and the traditional notion of parents relying on their children is fading.
This an insurance policy used to pay for funeral expenses. It covers the insured including their nuclear family i.e. spouse and children. It can also be extended to cover parents or siblings.
It can be purchased as a stand-alone product or as part of another insurance product. Funeral Insurance is an annual cover.
Upon demise of the insured or any of their immediate family members, the insurance company pays the claim to the appointed beneficiary within 48 hours of receiving notification and relevant documentation.
- Why do I need funeral insurance?
No amount of money can take your place, however, a funeral insurance cover can go a long way to minimize the financial drain on your loved ones.
- How much does it cost?
Funeral insurance can cost as low as Ksh100 per month. The premium is calculated at roughly 1.5 per cent of the total cover. For example a cover of Ksh100, 000 will attract a premium of Ksh1, 500 per year or Ksh125 per month.
Depending on your budget and preference, various service providers have different benefits. Remember, to compare the benefits being offered versus the premium to ensure you get the best value for your money.