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MONEY TALKS: Four insurance policies you must sign up for



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A reader emailed with a question. Macharia said:

Therein, you touched on insurance (car, health etc) but not in detail. Please would you advise us, your followers of your articles, on a number of insurance policies/saving plan that one can get themselves into, to take care of an uncertain future, be it an education one for your kids or such.

Thanks and look forward to an educating read.

Thanks for writing in, Macharia.

I’ve said this once before and I’ll say it again: I truly appreciate it when you guys write in with your questions. It’s an opportunity for us to share knowledge and experiences with one another, and to learn from each other.

Ultimately, that’s what this column is for.

I’m a strong believer in insurance.

I mean, life happens – you could lose your primary source of income, you will retire, you could fall ill and be unable to earn your income, your kids will need to go to school, you may decide to return to school or to travel for a year across West Africa or Europe, or you may decide to set up a shop that sells swimwear for toddlers, something along your passions and hobbies… It’s an indefinite list.

Whatever it is that will happen – whenever it will happen, Lord knows – you’ll need cash ready in your hands.

Insurance is one of the ways of planning to have that cash for investment in your hands.

Most insurance products are sold by insurance salesmen. For some reason, most of them are men. (Nothing sexist there, just pointing it out.) These men are like bubble gum that sticks on the bottom of your shoes – they’re annoying, persistent and won’t leave you alone until you address them with all your attention.

They’re persistent for a reason, though: because everyone needs insurance, and no one can ever have enough insurance.

A word of warning – don’t rely on just the word of the insurance salesman. Don’t! They could be selling you scented air simply to meet their target and make a commission.

Before you put your signature down on those insurance forms, make sure to personally go to the office of the insurance company – not a phone call – and sit with one of the customer service administrators for the respective products, respective departments. Let them take you through the ins and outs of the policy.

Make sure to ask all the questions you need to. (On another day, another story, I will tell you which questions to ask before you invest in a particular policy.)

At the very basic level, Macharia, here are four personal insurance policies you must have in your investment portfolio:

a) An education policy for each of your kids and one for yourself

Education policies are structured in a way that you pay premiums for a duration of time, then it gets to a point where – in the 15th, 20th or 25th year of the policy – you get a cash payout at the beginning of every (academic) year. This cash payout is for making school fees payments.

I insist that you take an education policy for each of your kids and as soon as they are born. (I have an education policy running for my yet-to-be conceived second child. I want to take out another one for my third child, Inshallah.)

Starting early gives you a head start with the premium payments.

Also have an education policy for yourself. You never know what the future holds, you may want to return to school someday for one course of the other. Maybe a professional course, maybe your first or second degree, maybe a public speaking class… who knows?

b) A pension policy for yourself

The benefits of a pension policies kick in when you retire.

How these policies work, is that you pay premiums over a period of your working life, until you retire at 55 years. 55 is the recognized age of retirement for insurance companies.

Then when you retire, the insurance company gives you the option of buying a product called an annuity.

An annuity pays you a certain amount every month (based on the premiums from your insurance policy) until the day you die. It’s like you’re on a monthly salary yet again.

Your age is a core determinant of how much you’ll pay in premiums is your age, and how much you’re assured to get when your policy matures at your retirement. You determine this sum when you sign up for the policy. Is it Sh1million? Sh5million?

c) A savings plan for yourself
Saving with an insurance company, and through a policy, is an alternative way to save. Your cash is locked in for the life of the policy – you can only access your cash, in full, when you terminate the policy. (At least that’s how it went for my savings plan.)

You get cash pay outs over the life of the policy. Say, in the 5th and 10th year.

What’s more, your policy should have an option of ‘flexing’ your premiums either up or down, as the seasons of your life progress.

d) A life cover for yourself/your dependants
A life cover says your dependants will get paid when you die through accidental death or when you get into an accident that turns you into a cabbage, unable to earn your income.

Most of the insurance policies I’ve mentioned above come with an inbuilt life cover.

You could also opt to have an exclusive life cover.

If you get into an accident, then you’ll benefit from this cover. If you won’t, then you’ll benefit from knowing you covered your backside, anyway.

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