This article is not about either/or on Life Insurance Endowment Policy vs. Sacco Savings. It is about a balance between Life insurance Endowment Policy and Sacco Savings, where I shall go deep about why you need to have both and what each entails and means to your financial life.
I have people ask me which one should they choose instead of the other. This is the wrong question. You should ask me how to balance the two since they play different roles in your money life.
Sacco savings are very popular in Kenya, and for a good reason. They generally have good dividends and access to easy credit. Sacco savings are good for growth and liquidity, and therefore, they are saving for the “now”.
Life Insurance Endowment Policy does not replace Sacco savings. The policy is designed for the long-term savings goals of 10-20 years introducing a different kind of financial discipline, forced savings. Your Sacco savings alone will hardly guarantee the future education of your children, especially if your life takes an unexpected turn. This is where an endowment policy fits.
The Sacco Savings Strength: Growth, Liquidity, and Loans
Sacco Savings have high returns and they are a “gold standard” in Kenya. They are almost at par with the Money Market Fund in terms of returns. Sacco dividends range from 8-12% on average, informed by their loans interest rates. You get these dividends from the interest they charge on loans they issue to members.
Being a member of a sacco, you are eligible for a loan, 3 times your savings for immediate projects that you have e.g. buying land, car, business e.t.c. Sacco terms and conditions apply to qualify or to get a loan.
Another reason you need a Sacco is that the savings are easily accessible and can be used as collateral for a loan. This is a blessing and a short fall. Savings accessibility deplete long term reserves.
The Life Insurance Endowment Policy Edge: Protection and Forced Savings
An endowment policy sets a target amount paid at maturity, based on how much you contribute. The full amount is paid at the end of the policy term either to you or your family even in case of the unfortunate events of permanent disability or death. In the case of these events occurring, you stop paying premiums (the monthly contributions) and the maturity payout is made either to you or your family. A life insurance savings plan therefore acts as a safety net.
In a life insurance savings plan, you must contribute monthly/quarterly/semi-annually/annually the agreed amount up to the last payment. The funds are locked until maturity. An endowment policy, therefore, introduces a targeted savings discipline to achieve your long-term goal. A good example of a life endowment policy is Britam’s Boresha Elimu education policy which allows you to save for a period of 6-18 years non-stop contributions and the maturity amount is paid in 3 bonuses in the last 3 years of the policy. In the last 2 years of the policy term, you do not pay premiums (the monthly contributions).
Again, with a life insurance endowment policy you enjoy a tax relief of 15% of the monthly contributions. This means, if your monthly contribution is KES 20,000, you will get a tax relief of KES (20,000*15/100) = KES 3,000. The tax relief is capped at KES 5,000 p.m.. The maturity payout/sum assured is not taxable.
Let’s do a simple comparison table between Sacco Savings and an Endowment Policy.
Side-by-Side Comparison: A Quick Look
| Feature | Sacco Savings | Life Insurance Endowment Policy |
| Primary Goal | Asset accumulation and credit | Asset accumulation, goal protection and life cover |
| Access To Funds | Flexible through withdrawals and loans | Funds are not acceptable until maturity. If unable to contribute any further, a cash surrender value is available. |
| Emergency | Dividends may fluctuate | Guaranteed sum assured (maturity payout) |
| Tax Benefit | A withholding tax is charged on dividends | 15% Monthly Tax Relief on monthly contributions (premiums) and the final payout is not subject to taxation. |
The Hybrid Strategy: Why You Need Both
- The Sacco For “Now”: You need a sacco for building wealth, buying assets, and short-term liquidity.
- Life Insurance Endowment Policy For the “Future”: Your endowment policy is a “set-and-forget” pillar for long-term goals such as education, buying a house, retirement that survives regardless of your health or presence.
- An endowment policy insures your sacco dreams by providing a lump sum to your family to pay off debts or continue projects if the breadwinner is gone.
Having learnt their key meaning and use of both, we can conclude It’s not about either/or; it’s about balance. If you have a sacco, you are already a great saver, and now it’s time to become a great “protector.”
I have created specialized calculators to see how a monthly contribution can secure a guaranteed future. If your long-term goal is to guarantee the future education of your children, this education policy calculator will help you to budget. If your long-term plan is to buy assets or supplement your retirement benefits, this life insurance calculator will help you out.
I am available 7 days a week for expert advice on balancing your Sacco and Insurance portfolios. Chat with me today through the WhatsApp link provided below 👇 👇 👇 👇 or Call me via the phone number provided.
Available 7 days a week for expert financial advice.
Thank you,.my dear reader!
