Insurance

INTRODUCTION

Insurance is a financial product that allows individuals and businesses to transfer risk to an insurance provider. In exchange for a relatively small payment (the premium), the insurer promises to compensate you if a specified loss/event occurs. It’s essentially a way to protect yourself from large, potentially ruinous costs by paying a predictable small cost upfront.

Key types of insurance relevant in Kenya:

• Health Insurance: This covers medical expenses. The most basic and widely used is the National Hospital Insurance Fund (NHIF), a government scheme. NHIF is mandatory for formal sector employees (deductions made via payroll) and voluntary for informal sector (at a flat rate of KSh 500 per month for the standard cover). It covers inpatient bills in many public and some private hospitals, and recently some outpatient and chronic disease coverage. In addition to NHIF, there are private health insurance plans from companies like Jubilee, Britam, AAR, APA, etc. These can cover inpatient, outpatient, maternity, dental, optical, etc., up to certain limits. Health insurance is crucial because a single serious illness or accident can cost hundreds of thousands or even millions of shillings. Without insurance, many families resort to harambees or go into debt. With insurance, a huge portion of that cost is taken care of by the insurer, in return for the premiums you’ve been paying. Example: If you have a cover of KSh 1 million and get hospitalized with a KSh 600k bill, the insurance pays that (subject to terms), whereas your total premiums in the year might have been say KSh 50k. It’s worth noting that health insurance often will not cover pre-existing conditions immediately (waiting periods apply) and requires renewal each year.
  
  

• Life Insurance: This pays out a sum to your beneficiaries (family) if you, the insured, pass away. The idea is to provide financial support to dependents (spouse, children, even aging parents) who rely on your income, in case you’re no longer there. In Kenya, life insurance often is combined with investment/savings components (endowment policies or unit-linked policies) – for example, you pay KSh X per month, and after say 15 years you either get a maturity payout if alive or if you died during the term, your beneficiaries get a payout. Pure term life (coverage only, no savings) also exists and is cheaper for high coverage amounts. Life insurance is especially important if you have young children or debts that would fall to others (like a mortgage). If a family’s breadwinner with a 5M mortgage dies, a life cover could pay off the loan or provide income replacement, preventing the family from losing their home or lifestyle. Many employers provide a basic group life cover for employees (often maybe 2-3x annual salary), but individuals can top up with personal policies.
  
  

• Motor Insurance: If you own a vehicle (car, motorcycle), motor insurance is mandatory (Third Party cover at minimum, by law). Third-party covers damage/injury you cause to others. Comprehensive cover extends to cover damage to your own vehicle as well, theft, fire, etc. Given the accident rates, it’s vital – a bad accident can incur huge liabilities or repair costs. Comprehensive insurance in Kenya also often comes with additional benefits (towing, minor medical for occupants, etc.). Without insurance, if your car is involved in a big accident, you could face bills or lawsuits far beyond your means. With insurance, the company steps in to settle those as per policy limits (e.g., fix both vehicles, pay injury claims).
  
  

• Property Insurance: This includes covers for home buildings and/or contents (home insurance), or business premises and stock (fire and burglary insurance, for example). For homeowners, insuring your house against fire, flood, theft, etc., can save you from losing what is likely your biggest asset. For renters, you can insure your valuable contents (electronics, furniture) against theft or damage. Landlords often require tenants to have some cover or have their own building cover. In Kenya, uptake of home insurance is still relatively low, but consider: a fire could raze a home and everything in it – insurance can provide funds to rebuild and replace, whereas otherwise you start from scratch.
  
  

• Personal Accident Insurance: This covers accidents causing injury, disability, or death. It often overlaps with health and life, but it specifically pays benefits for accidental injuries. E.g., it might pay a set amount for a broken limb, or a lump sum if the accident causes permanent disability. Many people get this as a rider on other policies or as standalone if their job involves risk (drivers, construction, etc.).
  
  

• Business Insurance: For entrepreneurs, there are covers like public liability (if someone is injured on your premises), professional indemnity (for professionals like doctors, lawyers – covers malpractice or errors), product liability, fidelity guarantee (employee theft), etc. If you run a business, these insurances manage specific risks in operations.
  
  

• Agriculture Insurance: There are emerging covers for farmers, e.g., crop insurance (to cover weather-related crop failure) or livestock insurance (compensates if animals die from covered events). Given Kenya’s reliance on agriculture and vulnerability to droughts, such insurance can be life-saving for farming communities, often subsidized by government programs.

The point of all these insurances is to mitigate financial loss from events that, though perhaps unlikely day-to-day, would have devastating impact if they occurred. You pay a premium which is usually a small fraction of the potential loss. It’s like pulling resources with many others – not everyone will suffer a disaster at the same time, so the insurer can pay those who do from the pool of premiums collected.

Insurance Tips:

• Always read or ask about what is covered and what is excluded. Policies have terms; for instance, a medical cover may exclude certain treatments or have waiting periods; a car insurance might not cover a drunk driving incident.

• Ensure you pay premiums on time to keep coverage active. Lapsed policies won’t pay claims.

• Compare quotes and coverage when buying insurance. Don’t just go for the cheapest – look at claim settlement reputation too. Ask friends or check reviews for insurers known to pay claims fairly.

• Take advantage of group covers if available (e.g., employer cover, or group schemes via Sacco or chama) as they can be cheaper or have fewer exclusions.

• Use insurance for catastrophic risks – those you absolutely cannot bear on your own. You don’t need to insure trivial things. For example, you don’t really need an insurance to cover a KSh 1,000 phone screen break; you can bear that. Insurance is for things like a KSh 1,000,000 hospital bill or a car theft or a house fire or a family losing a breadwinner’s KSh 50,000 monthly income for years. Focus your shillings on covering the big risks.

By insuring prudently, you protect your wealth. It’s part of risk management because it prevents a single event from wiping out all the progress from your income, saving, and investing efforts. It provides peace of mind – you hope not to use it, but it’s there if needed. A fun way to think of it is: life will always have surprises; insurance turns those surprises from financial tragedies into mere inconveniences in many cases.

Interesting Fact: In Kenya, it's mandatory to have motor vehicle insurance, and failure to comply can result in legal penalties. Additionally, the NHIF aims to make health insurance mandatory for all Kenyans, emphasizing the government's focus on risk mitigation.