Put simply, insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or their property, or from liability for damage or injury caused to a third party.

DEFINITIONS

Some common terms in insurance include:

Underwriting

The process by which an insurance companies determine whether to extend coverage to an applicant and/or set the policy's premium.

Premium

The amount you or your employer pays each month in exchange for insurance coverage.

Loss

In the context of insurance, "loss" refers to damage caused to an insured piece of property. A "covered loss" refers to any damage or injury that an insurance policy specifically provides protection for.

Damages

Not to be confused with "damage," this refers to the actual money one individual or party is required legally to pay to another.

Coverage

Coverage, or coverages, are the specific protections or benefits an insurance policy provides. These are outlined in your policy or contract, and can be found on your declarations page.

Insured

This refers to the person(s) (or sometimes organization or entity) that an insurance policy provides coverage for e.g., if you have an auto insurance policy, you are considered to be the insured in that contract.

Insurer

An insurer is the company or organization that provides insurance policies to the insured. This is another word for an insurance company, also called "carrier."

Agent

An agent, or insurance agent, is someone who sells insurance policies for an insurance company or carrier. Their agency may be exclusive or non-exclusive, meaning they sell insurance for a single carrier, or a number of carriers

Adjuster

Sometimes referred to as a 'claim examiner,' an adjuster is someone who investigates a claim. They determine if the loss is covered by the policy, estimate damages, and often write a check to the insured.

Benefit

The amount payable by the insurance company to a beneficiary.

Beneficiary

A beneficiary is a person who is designated as the recipient of payment of something like a life insurance benefit.

Benefit year

The 12-month period for which insurance benefits are calculated, not necessarily coinciding with the calendar year. Insurance companies may update plan benefits and rates at the beginning of the benefit year.

Dependent

Any individual, either spouse or child, that is covered by the primary insured customer’s plan.

Claim

A claim refers to any request for payment within the bounds of an insurance policy.

Deductible

The deductible is a specific amount that the policyholder must pay out of pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims

Coinsurance

The amount you pay to share the cost of covered services after your deductible has been paid. The coinsurance rate is usually a percentage. For example, if the insurance company pays 80% of the claim, you pay 20%

Copayment

One of the ways you share in your medical costs. You pay a flat fee for certain medical expenses, while your insurance company pays the rest.

Exclusion or limitation

Any specific situation, condition, or treatment that an insurance plan does not cover.

Policy Limit

The policy limit is the maximum amount that an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum.

TYPES OF INSURANCE

A multitude of different types of insurance policies is available, and virtually any individual or business can find an insurance company willing to insure them for a price. The most common types of personal insurance policies are auto, health, homeowners, and life.

Businesses require special types of insurance policies that insure against specific types of risks faced by a particular business. For example, a supermarket may require a policy that covers theft and damage to goods that occurs as a result of shoplifting and stacking shelves. An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives.

There are also insurance policies available for very specific needs, such as kidnap and ransom (K&R), medical malpractice, and professional liability insurance.

LIFE INSURANCE

Life insurance will help provide financially for your dependents. Life insurance is especially important if your family is dependent on your salary. Industry experts suggest a policy that pays out a multiple of your yearly income. The two basic types of life insurance are traditional whole life and term life.

Whole life: can be used as an income tool as well as an insurance instrument. It includes a death benefit and also a cash value component. As the value grows, the insured can access the money by taking a loan or withdrawing funds and can also end the policy by taking the cash value of the policy.

Term life: covers the insured for a set amount of time say 10 to 30 years and premiums remain stable. Generally, the most affordable type of life insurance is a term policy, it can work to cover the years during which a mortgage loan is outstanding or throughout your children's college years.

Endowment Policy: like a term policy, it is also valid for a certain period. A lump-sum amount will be paid to your beneficiaries in the event of your death. Unlike a term plan, the insured gets the maturity proceeds at the end of the period.

Money-back Policy: a certain percentage of the sum assured will be paid to the insured periodically throughout the term as survival benefit. After the expiry of the term, the insured gets the balance amount as maturity proceeds. Your beneficiaries get the entire sum assured in case of death during the policy period. This is regardless of the survival benefit payments made.

Unit-linked Insurance Plans (ULIPs): Such products double up as investment tools. A part of your premium goes towards your insurance cover. The remaining amount is invested in debt and equity. A lump-sum amount will be paid to your family in the event of your death.

Child Plan: This ensures your child’s financial security. In the event of your death, your child gets a lump-sum amount. The insurer pays the premium amounts after your death. Your child will continue to get a certain sum of money at specific intervals.

Pension Plans: This helps build your retirement fund. The insured can get a regular pension amount after retirement. In the case of untimely death, your family can claim the sum assured.

The premium amount depends on several factors that differ from carrier to carrier i.e., age, health (past and current), occupation, type of coverage/plan, smoking and drinking habits, sum assured etc.

HEALTH INSURANCE

Health insurance protects you from catastrophic bills in case of a serious accident or illness. Health insurance can be obtained through your employer, the government ‘N.H.I.F’ or private insurance you buy for yourself and your family by contacting health insurance companies directly or going through a health insurance agent.

Some examples of plan types you’ll find in the Marketplace:

Exclusive Provider Organization (EPO): a managed care plan where services are covered only if you use doctors, specialists, or hospitals in the plan’s network (except in an emergency).

Health Maintenance Organization (HMO): a type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won't cover out-of-network care except in an emergency. An HMO may require you to live or work in its service area to be eligible for coverage. HMOs often provide integrated care and focus on prevention and wellness.

Point of Service (POS): A type of plan where you pay less if you use doctors, hospitals, and other health care providers that belong to the plan’s network. POS plans require you to get a referral from your primary care doctor in order to see a specialist.

Preferred Provider Organization (PPO): A type of health plan where you pay less if you use providers in the plan’s network. You can use doctors, hospitals, and providers outside of the network without a referral for an additional cost

Premiums are determined by family health history, the sum assured, the type of coverage/plan, age and gender, health history among other metrics actuaries may use.

MOTOR INSURANCE

Motor insurance prevents insured from bearing the financial burden of an expensive accident. In many countries, it is mandatory for your vehicle to have a motor insurance cover before being used on a public road. The importance of having a motor insurance cover is that it covers you by compensating for physical damages as well as your liability to your passengers and other third parties involved in the unfortunate event of an accident. They include:

Third-party car insurance: this type of policy offers the most basic benefits. It is a plan you can opt for if you are trying to save money or your car will be in long term storage. It barely protects your car from accidental damage but meets the Kenyan Law of ensuring all cars are insured. It does not cover your medical expenses or any repair costs for your car.

Third-party fire and theft insurance: this type of policy offers better coverage for your car. Unlike the third-party cover, this particular policy protects your car from everyday risks such as theft and fire.

Comprehensive car insurance: this is the most recommended cover for a car. This policy protects your car from various risks your car may face. The benefits of this type of cover are that it protects you from totally losing your car, protects your car from theft of car parts, that you do not have to pay for accidental damage to your car when involved in an accident and you can enhance the cover to include uncommon risks such as political violence and terror.

The comprehensive car insurance is the best as it ensures your car is protected at all times.

HOME INSURANCE

Unlike auto insurance, no country law stipulates that you must have homeowners’ coverage. However, if you financed your home with a loan, your lender will usually require coverage to protect their interest in your property. This way, if your home is damaged or destroyed, you have funds to rebuild and won’t walk away from your mortgage.

Home insurance policies wrap up several types of coverage, including:

Dwelling coverage: from your roof to your floors, dwelling coverage protects the structure of your house from unexpected events like fire, wind, theft or vandalism. This type of coverage also pays to repair or replace structures attached to your property, such as a garage or deck. Your dwelling coverage amount should equal the cost of rebuilding your house.

Personal property coverage: this type of coverage protects your personal belongings, such as furniture, appliances and clothing. Problems covered include theft, fire and explosions. Coverage for personal property is usually set at an amount between 50% and 70% of your dwelling coverage. You can usually buy more coverage if you need more.

Other structures on the property: structures on your property like a tool shed or fence are covered under this type of coverage.

Liability coverage: liability insurance pays for injuries or property damage you accidentally cause to others. Additionally, liability home insurance covers your attorney fees if someone sues you. So, if a visitor falls on your front steps, liability coverage can pay for their medical bills and your lawyer fees. The amount of your liability insurance should equal your net worth or what could be taken from you in a lawsuit.

Additional living expenses: if you are temporarily displaced from your home because it’s been damaged by a problem covered by your policy, additional living expenses coverage pays extra costs such as for meals and lodging.

TRAVEL INSURANCE

A travel insurance compensates you or pays for any financial liabilities arising out of medical and non-medical emergencies during your travel abroad or within the country.

There are two types of Travel Insurance

Single Trip Policy: it covers you during a trip that lasts under 180 days.

Annual Multi Trip: it covers you for several trips you take within a year.

Travel insurance usually covers loss of baggage, emergency medical expenses, loss of passport, hijacking, delayed flights and accidental death.

BUSINESS INSURANCE

Workers’ Compensation: Almost every business must insure against injury to workers on the job. Some may do this through self-insurance, that is by setting aside certain reserves for this contingency. Most smaller businesses purchase workers’ compensation policies, available through commercial insurers, trade associations, or state funds.

Automobile Insurance: any business that uses motor vehicles should maintain at least a minimum automobile insurance policy on the vehicles, covering personal injury, property damage, and general liability.

Property Insurance: no business should take a chance of leaving unprotected its buildings, permanent fixtures, machinery, inventory, and the like. Various property policies cover damage or loss to a company’s own property or to property of others stored on the premises.

Malpractice Insurance: professionals such as doctors, lawyers, and accountants will often purchase malpractice insurance to protect against claims made by disgruntled patients or clients.

Business Interruption Insurance: depending on the size of the business and its vulnerability to losses resulting from damage to essential operating equipment or other property, a company may wish to purchase insurance that will cover loss of earnings if the business operations are interrupted in some way by a strike, loss of power, loss of raw material supply, and so on.

Liability Insurance: businesses face a host of risks that could result in substantial liabilities. Many types of policies are available, including

· Policies for owners, landlords, and tenants, covering liability incurred on the premises.

· Policies for manufacturers and contractors, for liability incurred on all premises.

· Policies for a company’s products and completed operations, for liability that results from warranties on products or injuries caused by products.

· Policies for owners and contractors, protective liability for damages caused by independent contractors engaged by the insured.

· Policies for contractual liability, for failure to abide by performances required by specific contracts.

REGULOTORY FRAMEWORK

Regulation of the insurance industry is usually done by government mandated organization whose functions include the regulation, supervision and licensing of insurers and reinsurers. In Kenya the Insurance Regulatory Authority ‘IRA’ was established by the Insurance Act ‘chapter 487’ in the constitution and is governed by a board of directors, in charge of appointing the Commissioner of insurance who is the Chief Executive Officer of the IRA (Commissioner).

The Insurance Act regulates the following matters:

· Registration of insurers and reinsurers.

· Minimum capital, local shareholding, corporate governance and capital adequacy requirements.

· Preparation and submission of accounts.

· Inspection and control of insurers.

· Transfer and amalgamation of insurance business.

· Insolvency and winding-up of insurers and reinsurers.

· Business of insurance intermediaries.

· Insurance Tribunal, which hears appeals against decisions of the IRA.

· Policyholders Compensation Fund, which provides compensation to claimants of insolvent insurers.

· Levies payable by insurers, including the insurance premium levy and the insurance training levy.

TIP: Insurance relief is offered by a government to all life insurance policyholders. Resident individuals are entitled to relief on premiums paid for life, education and health policies. Every resident individual is entitled to an insurance relief of 15% of the amount of premiums paid for self, spouse or child, subject to a maximum of KES. 60,000 per annum. The education policy must have a maturity period of at least 10 years.

HOW TO BUY INSURANCE

Step 1: KNOW WHAT YOU NEED

Understand the covers you need based on personal requirements.

Get all the important details. For example, in the case of motor insurance get details such as the manufacturing date of the vehicle, engine specifications, etc. For health insurance, check whether you need insurance for self or the entire family.

This initial assessment will help you get an idea about the coverage that you need.

Step 2: CHECK OPTIONS AVAILABLE

Compare the benefits offered.

Check the add-ons offered

Don’t forget to read the exclusions

What’s the sum assured?

Are there any extra services offered

Step 3: PICK THE RIGHT PLAN

Select the plan that best suits your requirements.

Reach out to the company offering the plan.

Step 4: PAY PREMIUM

Fill in the application and pay the premium.

You can do it online on the insurer’s website.

You can also buy from a broker or the dealership

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104 : INSURANCE

INTRODUCTION