In Kenya, we have different types of endowment policies. They are meant to serve different purposes or needs and different types of clients.
Long-term savings come with certain financial goals. Such goals include buying a land or house, educating your children, and building a retirement fund. Each of those long-term goals may be best achieved using a particular type of endowment than others.
Are you a risk-taker or risk averse? Do you prefer certainty over uncertainty? Do you trust systems? These questions describe your character in the market, and based on your character in the market, we have different types of endowments in Kenya for everyone to fit in.
Today, I will take you through 2 types of endowment policies, endowment policies with profits vs without profits in Kenya. Traditional insurance articles only discuss just one form of endowment with profits in Kenya. The Kenyan market offers a unique second way through structured savings plans.
I shall therefore discuss 3 options of endowment policies available to you based on profitability: Modern endowment policies with guaranteed profits, traditional endowment policies with unguaranteed profits, and traditional endowment policies without profits.
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Option 1: Modern Endowment Policies With Guaranteed Profits
This is a type of endowment policy that gives you a fixed savings return during enrollment.
The sum assured constitutes your savings plus savings returns. Profits are assured whether the company makes a profit or not through investing your contributions in their desired assets.
Total Maturity Payout = Guaranteed Sum Assured = Your Savings + Guaranteed Profits
The returns are substantial and generous given the risk is guaranteeing returns in advance. To achieve the best returns, you need to save for a period of 10 years or longer.
These policies offer two things, a guaranteed sum assured and life protection. However, you will notice these policies only offer death cover so that the biggest chunk of your regular contributions go to money value.
When you enroll in an endowment policy with guaranteed profits, the guaranteed payout is made at maturity or upon death. The death benefit is paid to the nominated beneficiary or a trust fund. In the unfortunate event of death, all future premiums are waived and the maturity amount is paid when due. You can also add a death cover as an option/rider where an immediate payout is made to the family in case you pass away before the end of term.
These policies also offer policy loans when the plan has reached a particular age, mostly 2-3 years. Policy loan is based on cash surrender value.
Endowment policies with guaranteed profits completely shields the consumer from corporate investment performance. Instead of waiting for yearly board declarations, the insurer calculates a competitive return profile upfront.
They are best suited to people who are risk averse and for those long-term goals that require guarantee e.g. buying a house or land, building an education fund, and saving for retirement.
Option 2: The Traditional Endowment Policies With Profits (Variable Growth)
Traditional endowment policies do not guarantee profits. Profits may be declared or not depending on the performance of the asset they are invested in.
The regular premiums you pay are pooled on the insurer’s Statutory Life Fund and invested in Kenyan asset classes such as treasury bonds, NSE equities, and real estate.
The final maturity value is not fixed or guaranteed on day one. It depends entirely on the variable bonuses the company declares each year based on market conditions.
Total Maturity Payout = Guaranteed Basic Sum Assured + Vested Reversionary Bonuses + Terminal Bonuses
The terminal bonus is quite discretional and might be paid to the policyholder if they survive the policy term as a thank you gesture.
It is best suited for longer horizons, 12 to 25 years, where you want a “smoothed” fund to help hedge against long-term inflation. It is designed for risk takers and long-term financial goals that do not need to be guaranteed.
Option 3: Traditional Endowment Policies Without Profits (Pure Fixed Cover)
These are traditional, rigid, non-participating contract. You do not participate in the investment profits of the insurer, nor is there a built-in savings compounding engine.
The payout can be simplified in this way:
Total Maturity Payout = Guaranteed Basic Sum Assured
Endowment policies without profits are best suites for pure budget conservation or matching a tight, short-term fixed banking liability, like collateral for a commercial bank loan, where you only need baseline protection for the lowest premium.
Head-to-Head Comparison: Endowment Policies With Profits Versus Endowment Policies Without Profits
| Feature | Endowment Policy With Guaranteed Profits/Savings Plan | Endowment Policy With Profits (Variable) | Traditional Endowment Policy Without Profits |
| Final Maturity Lump Sum | 100% guaranteed (baked into the contract on day 1) | Variable (unknown at inception and grows via annual bonuses) | Fixed and frozen (exactly equals the initial base cover) |
| Company Performance Dependency/Risk | Zero (returns are legally guaranteed regardless of insurer profits) | High (bad years mean lower declared annual bonuses) | Zero (no investment or bonus element exists) |
| Ideal Policy Tenure | Short to-m medium Term (strictly 5 to 12 years, work best in 10 to 12 years) | Long-term (10, 15, to 20+ years) | Short-term liability matching |
| Death Protection | Triggers waiver of future premiums to guarantee full maturity payout later | Pays basic sum assured + already accumulated bonuses to family | Pays out the fixed base sum assured immediately |
Standard Kenyan Regulatory and Operational Realities
When dealing with endowment policies, there are certain regulations and operational realities you should understand.
- The Non-Forfeiture Milestone (24-36 Months). Endowment policies with guaranteed profits usually attain a cash surrender value early (mostly 2 years) meaning you can get a policy loan or exit early in case of financial difficulties through cash surrender or paid-up option. Traditional plans usually stick to the 3-year (36-month) rule.
- Automatic Paid-Up Clauses. When a policy runs for 2 to 3 years and it lapses, it automatically converts to a reduced sum assured rather than collapsing completely.
- Tax Advantages. Endowment policies with a policy term of 10 years or more qualify for a tax relief of 15% of the regular premiums you pay, capped at KES 5,000 per month or KES 60,000 per year.
If you have long-term goals that require a guaranteed fund such as education, retirement, or buying a house for your family, you do not take any risks. You go with modern endowment policies with guaranteed profits such as Britam’s Akiba.
If you are a risk taker or you have long-term financial goals that do not require a guarantee or certainty, you can opt in for an endowment policy with variable profits.
Endowment policies without profits are for short- term goals where you strictly need cheap, basic cover to protect a debt.
