You have put your money into a personal insurance plan, I know you have.
If I were to ask you why you ended up putting your money there, I bet you would tell me it was to get that persistent sales agent off your back.
‘His badgering got to me and I gave in,’ you will say with a sigh.
Worse, you are not certain how your policy works or how much money you expect to make from it when it matures.
You are not even aware of any other benefits that complement the policy. Most of us, I am afraid, fall under the shadow of this looming darkness.
Life happens. The personal finance experts (like me, ahem) will bang on about the importance of taking insurance for the eventualities of life happening.
Eventualities such as your failing health, pension and retirement, your kids’ education, accidents that threaten the continuity of your income and – most importantly – death.
Insurance will cover you when life happens. The benefits of your policy will kick in to pick up the pieces for you, it will soften the blows that life will have dealt you.
Truth is, insurance is not an investment option with the most returns.
You invest time in years yet the insurance policy does not give you the maximum earning potential of your money.
You can get much more money by investing pretty much anywhere else – in another product in the financial market, in the non-financial market or even in yourself.
Consider an education policy for your kids. I have just had coffee with an insurance agent to consider options for my son’s education.
Njeeh turns two in September, Inshallah. I am 38 years old now. Njeeh will join high school at 13, which means we have an 11-year head start to start putting money aside for his education.
I have asked the agent to work with school fees per term of Sh200,000.
Using this personal data, the insurance agent gets down to business, she is using her tools to work out how much I will need to pay in premiums per year and how much to expect when Njeeh joins high school.
This is what came out of her tools. (I have rounded up the figures for your ease.) To be able to comfortably cover Njeeh’s high school fees, I will have to start paying per month a premium of Sh23,000.
After 11 years of monthly premiums, the insurance company guarantees a cash pay-out of Sh4.3 million.
Let that sink in for a second. Revisit the numbers. Now rework them for yourself. Surely, after 11 years, I will only have made an extra Sh1.2 million from this policy.
And Njeeh’s education need not be paid from an education policy only, it can be paid from any other returns of any other investment.
But insurance as an investment option has an element to it that no other product in the market does – insurance is the only investment that guarantees a cash payout.
This pay-out will be made to my husband, my kids and anyone I have listed as a next of kin.
This cash is paid out when I die or when the policy matures, whichever comes first. (Of course, there is some fine print to this pay-out, you will run over them with your insurance agent as you understand the dynamics of the policy.)
So the next time you are out shopping for an insurance product, shift your focus from the investment returns of the policy to the guarantee of its security.
‘Does this insurance policy guarantee my partner and children a cash pay-out when I die?’ ‘How many years into the policy is this pay-out guaranteed?’
‘What should my premium contribution history look like at the point of my death, for this cash pay-out to be guaranteed?’
Florence Bett-Kinyatti is a certified accountant and former financial auditor. She is also the author of the book ‘Should I? Your questions about money.’
