Why life insurance is their best bet to build wealth

Life insurance is a contract between a policyholder and an insurer in which the individual pays regular premiums and the insurance company pays out a benefit to the individual’s specified dependents in the event of their death. FILE PHOTO | SHUTTERSTOCK

Our workforce patterns are altering as older members of the Generation Z cohort enter the workforce.

While they may not be considering financial investments since they have no significant financial responsibilities, they should instead be thinking about wealth creation or wealth protection.

However, given their limited discretionary income, it is wise for this group to put more of their attention into wealth preservation than wealth production, as the latter serves to increase one’s wealth.

And the alternatives are endless and include buying stocks, bonds, treasury bills, money market funds, and other sorts of investments, whereas wealth preservation shields our loved ones from financial losses. This is where life insurance comes in.

Life insurance is a contract between a policyholder and an insurer in which the individual pays regular premiums and the insurance company pays out a benefit to the individual’s specified dependents in the event of their death.

This is especially crucial for Generation Z individuals who may not have substantial assets or money to leave behind. The death benefit can be used to pay for the individual’s dependents’ expenditures.

In Kenya, there are three forms of life insurance available: Term life insurance, whole life insurance, and endowment insurance. Term life insurance is the most basic and least expensive kind.

It offers coverage for a certain length of time, often 10, 20, or 30 years. Whole life insurance offers coverage for a person’s whole life and accumulates cash value over time.

Read: Changing mindsets about insurance

Endowment insurance is a hybrid of term life insurance and savings that pays out a benefit to the individual’s dependents if the individual dies or to the individual, if the policy term expires.

Accordingly, life insurance may be obtained from a variety of sources including insurance firms and banks. Different insurers provide comparable policies; the main variation is how appealing their features are tailored.

The plans start at Sh900 per year for final expense insurance and Sh1,000 per month for endowment policies.

Why life insurance?

Despite having a population of over 50 million people, Kenya’s penetration rate in the industry is only 1.3 percent, which is relatively low. This is an excellent time to invest. In addition, there are various advantages to purchasing a life insurance policy.

For starters, life insurance protects loved ones financially in the case of an untimely death. It can offer your beneficiaries a lump sum payout to assist cover expenditures such as funeral bills, outstanding debts, and living expenses.

Second, life insurance may be used to save money. Whole life insurance, for example, permits you to accumulate cash value over time that you can utilise for future costs or retirement.

Further, endowment enables you to save for a specific objective, such as starting a business, with a percentage of the death benefit going toward that goal.

Read: How tech is disrupting Kenya’s insurance sector

Finally, life insurance in Kenya provides tax advantages. Life insurance premiums are tax-deductible, and the death benefit is typically tax-free, allowing your beneficiaries to keep more of the money they receive.

In a nutshell, it is critical to comprehend the prices of life insurance.

Premiums are determined by characteristics like age, health, and coverage quantity. Other components of your policy, such as exclusions, restrictions, and riders, are critical. Some insurance, for example, may not cover fatalities caused by particular activities or conditions.

Before purchasing life insurance in Kenya, Gen Z should examine the above aspects to guarantee they are making the best option for their requirements and circumstances.

Ms Sanaipei is a claims and underwriting administrator; [email protected]