Education insurance payouts refer to the benefits paid to a policyholder of an education insurance policy at maturity or at stages defined by the policy.
Understanding the payout structure is important for parents planning school fees. You get to know at what stage payment will be made to you and, therefore, plan accordingly.
Payout terms differ depending on the policy, insurer, and the chosen education milestones.
What Is an Education Insurance Payout?
Education insurance payout in simple terms refers to the money released by the insurer to support a child’s education expenses.
These payouts can happen at the end or along the term of the policy and can be triggered by certain events that may occur in the policyholder’s life as defined by the policy in question. They may be paid:
- At maturity
- In installments
- After the death or disability of the parent
- Through bonuses or guaranteed benefits
How Education Insurance Policies Are Structured in Kenya
An education insurance policy is structured in a way that it has the following elements:
- Policyholder
- Beneficiary
- Premiums
- Policy term
In an education policy, the parent or the guardian is the policyholder. The main person in the records.
The beneficiary is the child whose school fees and related costs are being built through the regular contributions.
Premiums are the regular contributions made towards building an education fund for the future school fees. The premiums/contributions are paid to the insurer either monthly, quarterly, semi-annually, or yearly. The choice is yours as a policyholder.
Policy term refers to the savings period. It is the period between the starting date and the maturity date. The policy term is usually in years.
The maturity date is usually aligned with education stages e.g. junior secondary, senior secondary and tertiary level in Competency-Based Education (CBE system) or lower secondary, O-level, A-level and tertiary level in the IGCSE system.
Policy term introduces the aspect of short-term and long-term education insurance policies.
Types of Education Insurance Payouts in Kenya
- Maturity Payouts
Maturity payouts refers to the payments made at the end of the policy term toward the school fees of the child and related costs and can be a single lump sum or staggered payments over several years.
Maturity payouts are the most common payout type and the funds are usually released to the parent’s/guardians bank account.
For example, Boresha Elimu education policy has a maturity payout consisting of 3 bonuses spread across the last 3 years of policy. It is one of the best education policies for junior secondary, senior secondary, and tertiary level under CBE and lower secondary and tertiary levels under IGCSE curriculum.
- Survival Benefits
Some education policies release some partial payments/payouts before maturity of the policy.
The purpose of these payments is to help parents pay school fees during certain critical stages.
- Death Benefit Payouts
If the policyholder dies before the term of policy ends, and it is outside the policy waiting period (usually 1 year), the beneficiary receives a payment. This payment is what is referred to as the death benefit payout.
In some policies the death benefit is paid instantly when the death occurs if it is inbuilt. If a policy does not have a death benefit inbuilt, you can choose to add it as an option (rider).
Whether a policy has an built death benefit or not, when the policyholder dies outside the waiting periods, the insurer waives the premium and the maturity payouts are made when due as per the policy term.
- Permanent Disability Benefits
Just like the death benefit, some policies have inbuilt permanent disability benefit, others not, but may allow policyholders to add it as an option.
Once the policyholder becomes permanently disabled due to illness or accident a payment is made to the policyholder instantly.
Regardless of whether an education insurance policy pays an instant permanent disability payout or not, if the savings period is outside the waiting period, the policyholder stops paying premiums (premium waiver) and the maturity payouts are paid when due as per the policy terms.
- Bonus Payouts
Some policies pay bonuses timed at certain stages of the policy term.
They help parents navigate easily through the school fees paying period.
Bonuses add up to the total policy payouts. They are defined as a fraction or a percentage of the maturity payouts.
For example, Msingi Poa education policy pays 4 bonuses spread across the last 4 years of the policy. The 4 bonuses add up to the total policy payouts.
Msingi Poa is one of the best education policies designed to pay school fees for education systems that have levels that require 4 payouts. It is very suitable for IGCSE O-level and A-level combined since they take 4 years to complete combined. The policy is also suitable for the tertiary level education system that takes 4 years to complete.
Policy payout structures vary depending on the insurer and policy terms.
When Education Insurance Payouts Are Made
When enrolling for any education insurance policy, it is determined whether it is suitable for the level you are targeting.
If it is suitable, a policy term is chosen to ensure the payouts align with education level.
So, a well designed policy term will start paying at the beginning of the education level you are targeting. This is to ensure that school fees do not become a burden due to.misaligned policy.
For example, if you enroll in Boresha Elimu, a policy term is chosen such that if your target is junior secondary, the bonuses will stay at the beginning of year 1 that level and the last bonus is paid in the beginning of the third year.
Some insurers pay annually while others pay termly or in lump sum form.
How Education Insurance Payout Amounts Are Calculated
There are certain factors that determine the total payout value of an education policy.
Those factors include:
- Premium amount or the contribution amount you make regularly. The more you contribute, the larger the total payout value.
- Policy duration, which determines accumulated savings as a result of contributions and the savings returns. The longer the savings period, the greater the total payout value.
- Sum assured, which is determined by the contribution one makes and the policy term. Most bonuses are derived from the sum assured value e.g. a bonus is 20% sum assured.
- Bonuses earned, which are the payouts paid in between the policy term and are mostly derived from the sum assured. E.g. a bonus equivalent to 100% sum assured.
- Investment performance. Most education insurance policies have a fixed total payout value guaranteed throughout the policy term. However, the performance of education policies derived directly from investments depends on the performance of the investments they are linked to.
Lump Sum vs Installment Payouts
Lump Sum Payouts
Lump sum payout is where a parent receives the total payout value in one single pay.
The advantage of a single lump sum is flexibility and the ability to reinvest the payment or part of it in short term instruments such as the money market fund.
However, there is a high possibility of misusing funds.
Installment Payouts
This is where payment towards education costs are made in structured payouts over several years.
The key advantages are better fee management and reduced spending pressure.
However, you may miss the opportunity to reinvest the savings before the school fees of all levels fall due.
Sometimes we overrate ourselves with our ability to invest and reinvest. I, therefore, recommend education policies that have structured payouts over several years to avoid misusing education funds.
What Happens If Premium Payments Stop?
If you stop paying the regular contributions/premiums, there’s a grace period of 2-3 months before the policy lapses (becomes inactive).
If you do not pay the arrears, the policy lapses. You can make it active again by paying the arrears.
Depending on the terms and conditions of an education insurance policy, there are certain periods (e.g. below 2 or 3 years) that the only way to recover all or some of your money is to reactivate the policy through paying the arrears or redating the policy and starting afresh.
If the policy is above a certain number of years (e.g. above 2 or 3 years), you can opt out through a cash surrender value or a paid-up option.
A cash surrender value is a payout made to a parent by the insurer depending on the number of years they contributed to the fund. The amount is determined by the insurer underwriters and is way less than the total maturity payouts.
A paid-up option is where the parent contributes more than the stipulated minimum opt out period and lets the fund stay with the insurer until maturity date. The parent will receive a lesser maturity payout.
The unpaid premiums affect final payouts.
How Long Education Insurance Payouts Take in Kenya
When an education policy matures, the money is credited to a parents account without delays.
For straight forward insurance companies, they will notify you a month or so via an automated email to update your receiving account so that you can be paid in time.
This is done via apps nowadays through self service.
Once your account is up to date, the payment is made on the due date. You may have to wait a little while for the bank transfer processing.
No other delays should happen.
Documents Required for Education Insurance Payouts
For some payment like permanent disability and death benefit, some documents are required. They include:
- National ID
- Policy document
- Child’s birth certificate
- Claim forms
- Bank details
- Death certificate (for death claims)
- Medical reports (for disability claims)
Common Mistakes Parents Make About Education Insurance Payouts
Some common mistakes parents make about education insurance payouts include:
- Assuming all payouts are guaranteed
- Not understanding policy maturity dates
- Choosing insufficient cover amounts
- Missing premium payments
- Ignoring policy terms and exclusions
- Expecting instant access to funds
When choosing for an education insurance policy, choose an insurer and a policy with:
- Guaranteed benefits
- Bonus history
- Claim settlement reputation
- Premium waiver benefits
- Early payout options
Parents should understand payout timing, structure, and conditions before purchasing a policy.
That’s all for today, see you in the next.
