A money back life insurance policy is a type of cash value life insurance, combining life protection and savings with periodic payouts while the policy is still running. It is also known as the anticipated endowment policy.
Instead of waiting for the full payout at maturity, the insurer keeps sending some payouts to a policyholder at defined intervals/dates, usually a percentage/portion of the sum assured.
Currently, many Kenyans are looking for life insurance plans that combine life cover and savings. A money back life insurance is a good option as it offers survival benefits at regular intervals as agreed with the insurer and the final payment at maturity.
Anticipated endowment policies are very popular for school fees planning, family protection, and disciplined savings, retirement planning, and long-term goals such as buying a land.
Since money back policies can be very beneficial to you, in this article I will show you how the policy works, benefits, drawbacks, and whether it is worth considering in Kenya.
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What Is an Anticipated Endowment (Money Back) Policy?
Once again, a money back life insurance policy is an anticipated endowment policy combining a life cover and savings.
The life cover featured in most money back policies include disability and death benefit.
It means that if the policyholder becomes totally and permanently disabled as a result of accident or sickness, a premium waiver is offered and a disability benefit is paid.
In the event of death of the life insured, a death benefit is paid and most policies terminate right away.
Your money grows as you continue remitting your regular contributions/premiums. The longer the policy term, the more are the savings returns.
And as you continue saving, you will get survival benefits periodically as agreed. The period payouts made as the policy is running have well defined dates when you shall receive them and they are very beneficial in helping you sort out some future financial goals such as clearing school fees.
The Intervals you receive the survival benefits depends on the policy term (the number of years your policy is running).
For example, if you enroll in a money back life insurance policy and the policy term is 12 years, you might receive your survival benefits after every 4 years of the policy term.
This means, by the end of your savings plan, you will get 3 payouts at the 4th, 8th and 12th year.
Again, at the end of the policy term, in this instance, 12th year, you shall receive the maturity payout.
How are the survival benefits determined/calculated? They are usually defined as a percentage of the sum assured e.g. 20% of the sum assured.
For example if your sum assured is KES 10,000,000, and the survival benefits are 20% of KES 10,000,000, you will be getting KES 2,000,000 as the survival benefits. The final maturity payment is KES 10,000,000 (sum assured). If we keep using the 12 year policy term above, you will get KES 2,000,000 the 4th, 8th, and 12th year. And then KES 10,000,000 will be paid as the final maturity payout. You shall have pocketed a total of KES 16,000,000.
From the example above, with the survival benefits, you can clear out less cash demanding financial goals such as school fees and the final payout can be used to achieve a long term goal such as buying a house.
How Money Back Life Insurance Policies Work in Kenya
When you enroll in an anticipated endowment policy, you pick a policy term.
Money back policies have longer policy terms than the usual life insurance policies.
They usually run from 10 years to 25 years since you will not notice the policy term ending due to the periodic survival benefits before the maturity benefit.
To keep your policy active, you make regular contributions/premiums, usually paid monthly, quarterly, semi-annually, or yearly.
The contribution amount depends on the set minimum you can enroll with, your long-term goals, and the maximum sum assured you can take.
If you make your contributions quarterly, semi-annually, or yearly, it is more likely to get premium discounts.
The entry age as a policy varies from policy to policy and is usually between 18 years to 60 years.
As the policy term runs, you will get the survival benefits as defined in the contract at the stated intervals/dates intervals.
The maturity payout is made when the policy term ends and the policy terminates.
Use this money back life insurance calculator to plan understand how it works.
Key Features of a Money Back Policy
- Guaranteed payouts at specific intervals, as defined by your policy.
- Life cover throughout the policy term against disability and death
- Maturity benefit at the end, equal to the sum assured.
- Fixed premium payments at regular intervals (monthly, quarterly, semi-annually, or yearly)
- Savings discipline. You must contribute regularly as agreed.
- Optional riders or additional benefits. If you feel the protection is not enough, you can add some more life cover at an additional cost, but a very small amount.
Benefits of a Money Back Life Insurance Policy
Money back insurance policies are very beneficial:
- They help you build a disciplined savings habit, one of the overlooked benefits of endowment policies. Without a strict plan, most people will not achieve their long-term goals.
- Provide financial protection for dependents. Money back policies feature life insurance against disability and a death cover, guaranteeing financial stability to family, whether the policyholder is there or not.
- Return periodic cash payouts (survival benefits) for planned expenses
- They are good tools for supporting school fees, business needs, family projects, and emergency funds.
- Since the survival benefits come before maturity, they lower financial pressure giving policyholders peace of mind.
- They are suitable for long-term financial planning
Drawbacks of Money Back Policies
Despite having so many benefits, money back policies have their drawbacks.
- Premiums are usually higher than pure life insurance since they combine financial protection and savings. Pure life insurance offers just financial protection without a savings element.
- Missing premium payments may affect benefits. You must consistently make your regular premiums/contributions to receive payouts as per the schedule.
- Early surrender can lead to losses. If you opt out early before maturity of the policy, the cash surrender value, determined by the insurance underwriter, may be less than your actual contributions. You get penalised for opting out early.
- Just like any other savings plan or investment, if a country’s economy deteriorates, inflation may reduce the real value of future payouts.
Who Should Consider a Money Back Life Insurance Policy?
- Parents planning future school fees: Together with education insurance policies, money back policies help parents plan for the future education of their children.
- Salaried employees seeking disciplined saving: These policies help them consolidate their income into one huge fund to finance their long-term financial goals.
- Business owners planning future expenses: Business owners can also consolidate their profits into one huge fund to finance their business expenses in the future.
- Young professionals starting long-term financial planning: Their incomes are a little bit lower and to meet their cash-demanding goals, they can also consolidate their income through cash value insurance policies and still earn savings returns.
- People who want insurance plus savings in one product: Money back policies are a solid plan if you don’t want standalone savings plans and pure life insurance.
Important Things to Check Before Buying an Anticipated Endowment Policy in Kenya
To have a money back insurance policy plan that works well, here are the things to consider before enrolling.
- Premium affordability: Cash value life insurance policies usually have higher premiums than pure life insurance. I, therefore, advise you not to overcommit. Ensure the premium you choose is in harmony with your income. Again, you should have regular income to avoid lapsing of the policy.
- Policy term length: You should pick a policy term that aligns with your long-term financial goals. Longer policy terms have better returns, holding the premium constant, but this does not mean you pick a longer policy term that does not align with your goals.
- Total expected returns: When it comes to life insurance savings policies, it is important to have realistic savings returns expectations. Some portion of your contributions go to financial protection for your family while the other portion goes to savings.
- Payout schedule: Money back life insurance policies have different payout schedules. One can guarantee payment of survival benefits after every 4 years, while the other can guarantee after every five years. Pick the one that aligns with your financial goals.
- Waiting periods and exclusions: Most endowment policies have a waiting period where death and disability benefits are not paid if they occur, unless they are caused by an accident. The waiting period is one year for most policies.
- Penalties for missed payments: Some policies might have penalties when you do not pay your premiums on time. However, some will just let you pay the arrears if you did not stop a long time ago, usually 2 months.
- Insurer reputation and claim settlement process: This is very important. Some insurance companies are known not to honour their pledges. Enroll only with tested companies. However, in case an insurance company misbehaves, seek assistance for Insurance Regulatory Authority (IRA). If the insurer is found in breach of contract, they will be fined and forced to pay.
- Inflation impact over time: Inflation makes sense, but affects everything money including investments and savings plans. To cushion your long-term goals from inflation, I advise you to keep reviewing your savings and investment plans from time to time.
Are Money Back Life Insurance Policies Worth It in Kenya?
Money back life insurance policies are very valuable to individuals who want to achieve their long-term goals.
They help you consolidate your income that comes in smaller chunks into one huge fund while still generating savings returns that can finance your long-term goals such as buying a house, land, or paying school fees and related costs.
Again, your dream of protecting your family financially is guaranteed through life cover of the life insured.
Most people focus just on the money side of a cash value insurance policy and forget the life protection part. Life protection is very vital. Your family will be taken care of whether you are there or not.
Does it suit conservative savers? Yes it does since unlike endowment policies with just a maturity benefit, savers can get regular payouts at defined intervals/dates.
For those who want high risk investments with higher returns, this plan may not be suitable for you. This is for people who cannot afford to lose their hard earned money through unguaranteed markets such as the foreign exchange and commodity markets.
It is for those looking to balance protection, savings, and financial goals.
If anticipated endowment life insurance is for you, please feel free to ask for a free quote through the provided phone number.
Thank you, my dear reader!
