Types of policiesi) Whole life assurance
- In whole life assurance, the assured pays regular premiums until he/she dies.
The sum assured is payable to the beneficiaries
upon the death of the assured.
- Whole life assurance covers disabilities due to illness or accidents i.e. if the insured is disabled during the life of the policy due to illness or accidents, the insurer will pay him/her for the income lost. ii) Endownment policy/insurance
This is whereby the insured pays regular premiums over a specified period of time.
The sum assured is payable either at the expiry of the period (maturity of policy) or on death of the insured, whichever comes first.
The insured, at expiry of policy is given the total sum assured to use for activities of his own choice.(ordinary endownment policy)
- Where the insured dies before maturity of contract, the beneficiaries are given these amounts.Note;
The assured person may be paid a certain percentage of the sum assured at intervals until the expiry of the policy according to the terms of contract.
Such an arrangement is known as Anticipated Endownment policy.Advantages of Endownment policies
i. They are a form of saving by the insured, for future investments.
ii. Premiums are payable over a specified period of time which can be determined to suit his/her needs e.g. retirement time.
iii. Where the assured lives and time policy matures, he receives the value of sum assured.
iv. Policy can be used as security for loans from financial institutions.Differences Between a whole life policy and an Endownment policyWhole life Endownment
i) Compensation is paid after
the death of the assured.
ii) Premiums are paid
throughout the life of the assured.
iii) Benefits go to the
dependants rather than the assured.
iv) Aims at financial security
i) Compensation is paid after
the expiry of an agreed period.
ii) Premiums are paid only
during an agreed period.
iii) The assured benefits
unless death proceeds the
expiry of the agreed period
iv) Aims at financial security
of the assured and dependants iii) Term insurance
The insured here covers his life against death for a given time period e.g. 1yr, 5yrs e.t.c.
If the policyholder dies within this period, his/her dependants are compensated.
If the insured does not die within this specified period, there is no compensation. However, a renewal can be taken.IV) Education plan/policies
This policy is normally taken by parents for their children’s future educational needs.
The policy gives details of when the payments are due.v) Statutory schemes
The Government offers some types of insurance schemes which are aimed at improving/providing welfare to the members of the scheme such as medical services and retirement benefits.
A member and the employer contribute, at regular intervals, certain amounts of money towards the scheme.Examples
3. Widows and children pension scheme (W.C.P.S)
AnnuityCharacteristics of life Assurance
• It is a cover for life until death or for a specified period of time.
• It may be a saving plan.
• It is normally a long term contract and does not require an annual renewal.
• It has a surrender value.
• It has a maturity date when the assured is paid the sum assured bonuses and interests.
• A life assurance policy can be assigned to beneficiaries.
• The policy can be any amount depending on the assureds’ financial ability to pay premiums.
• The policy can be used as security for a loan 2.General insurance (property insurance)
This type of insurance covers any form of property against the risks of loss or
A person can insure any property he has
an insurable interest in General insurance is usually divided into:
i. Fire insurance/department
ii. Accident insurance/department
iii. Marine insurance/departmenti) Accident insurance
This department covers all sorts of risks which occur by accident and includes the following;a) Motor policies
- These provide compensation for partial or total loss to a vehicle if the loss results from an accident.
- The policy could either be third party or comprehensive.
-Third party policies cover all damages caused by the vehicle to people and property other than the owner and his/her vehicle.
This includes pedestrians, fare-paying passengers, cows, fences and other vehicles
In Kenya, a motor-vehicle owner is required by law to have this policy before the vehicle is allowed on the roads. One can also take a third party, fire and theft policy.
Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered by the owner. Comprehensive policies
include full third party, fire, theft and malicious damage to the
vehicle.b) Personal accident policy
- These policies are issued by insurance companies to protect the insured against personal accidents causing;
• Injury to the person
• Partial or total physical disability as a result of the injury
• Loss of income as a result of death
- If death occurs due to an accident, the insured’s beneficiaries are paid thetotal sum assured.
In case of a partial or total disability as a result of accident, the insured can be
paid on regular periods, e.gmonthly as stipulated in the policy.
Compensation for injuries where one loses a part of his/her body can be done on a lumpsum basis.
The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.c) Cash and / or Goods in Transit policies
These are policies that specifically provide cover for loss of cash and goods in transit between any two locations.
E.g. Goods and cash moved from business to the markets, from suppliers to business e.t.c.d) Burglary and Theft policies
These policies cover losses caused by robbers and thieves.
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
E.g.-How much money should be maintained in different kinds of safety boxes.
-Positioning of each of the cash boxes is also an important precautionary measure.NB:
The control measures are aimed at reducing both the extent and probability of loss occurring.e) Fidelity Guarantee policies
These policies cover the employers against loss of money and/or goods caused by their employees in the cause of duty.
- The losses may be as a result of embezzlement, fraud, arithmetical errors e.t.c.
- The policies may cover specified employees or all the employees.
7) Workmen’s compensation (Employer’s Accident liability)
These policies provide compensation for employees who suffer injuries in the course of carrying out their duties.
The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.f) Public liability
This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.
The insurer pays all claims from the public upto an agreed maximum.g) Bad debts
This policy covers firms against losses that might result from debtor’s failure to pay their debts.iii) Marine Insurance
This type of insurance covers ships and cargo against the risk of damage or destruction at the sea.
The main risks sea vessels are exposed to include; fire,theft, collision with others, stormy weather, sinking e.t.c. Insurance 1
| Insurance 3
| Insurance 4