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Planning For Your First Child? It's Time To Start Thinking About Insurance
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Planning For Your First Child? It's Time To Start Thinking About Insurance

Financially planning for a child is crucial for your family’s financial security. It is why people strive to build stable income streams and ensure that they save enough for emergency expenses before having a baby.

While those are critical, planning for a child should also involve investing in insurance. Insurance protects you and your family from significant financial uncertainties.

It involves entering a contract with a policy provider (the insurer) to safeguard you and your family against a certain set of unforeseen risks. Under this agreement, you pay agreed amounts of money periodically (known as premiums) to the insurer, who pays you the sum assured in the unfortunate event that the risk you are insured against materializes.

As a parent, the possibility of events such as loss of income, accidents leading to injuries, sickness etc. is always high and can be financially draining if you are not prepared. Every responsible parent owes their children the duty of care hence should prepare to give them the best possible protection in life. One crucial way to do that is by mitigating financial risk through insurance.

But what types of insurance should you consider, and how much coverage do you need? Which kind of policy will be a good option for saving for your child's education? What can an endowment policy do for me? Don't leave these questions unanswered – It's time to start thinking about insurance.

Why You Need to Think of Insurance

Your insurance needs will drastically change when you decide to have a child. Since the coverage is no longer just for you, you must reevaluate your insurance needs.

While nobody wants to think about possible worst-case scenarios when planning to have a child, it can be catastrophic to ignore the topic. Insurance is a critical defense line to protecting your family from financial instability.

Stability is all about controlling your finances and having peace of mind. As a parent, that's achieved when you know your child and family will be provided for even when unanticipated events of loss occur. Insurance can help you reach that state of mind.

Investing in insurance offers multiple financial benefits, including:

  1. Covers you against uncertainties: When you buy an insurance policy, you are indemnified against losses. That means your policy provider will step in and pay the bill when you have an unexpected expense that was covered by the policy e.g. a large medical bill. In short, you won't have to spend out of pocket to settle a massive bill that is covered under your policy.
  2. Protects you when you have cash flow problems: Emergencies can happen anytime, and sometimes they can occur when you are least prepared for them. For instance, if you were to become unemployed as a parent, you would still have to pay hospital bills and school fees for your child. This can be hard, but if you have invested in an insurance policy to address this uncertainty - loss of income - you can claim and receive money to cover your bills while you work towards getting back on your feet.
  3. Investment opportunity: When you buy an insurance policy, your insurer typically invests and grows the money. That means, if you choose the appropriate policy type, you might receive more than the principal you contributed when the policy matures. The Absa Endowment Policy is structured to help you achieve longer-term financial goals upon maturity while ensuring that you and your beneficiaries are covered in case of critical illnesses, permanent disability or even death.
  4. Tax deductibles: Long term life assurance policies such as Education and Endowment policies are eligible for insurance tax relief of 15% of the amount of premium paid for the policy, subject to a maximum of Ksh60,000 per annum. The policy must have a maturity period of at least ten years. This is in line with the guidelines of the Kenyan government.
  5. Cost-effective in the long-term: A parent who invests in insurance will typically spend less or no money out of pocket to settle a medical bill or education fees for their children than one who doesn't. The policy maturity benefit (the amount an insurance company is liable to pay you at the end of the policy period) is typically more than the amount you spent paying for the policy.

5 Insurance Types New Parents Should Consider

As discussed above, insurance can significantly protect you from a financial crisis. Therefore, what policies should you prioritize when evaluating your insurance needs?

There are many types of insurance policies available today in Kenya that can cover you against various uncertainties. But you don't need all of them. Before you sign up for any policy, you must evaluate your needs. When planning to have your first child, you need to focus on the policies that will protect you and your family.

Here are five essential insurance types you may want to start thinking about.

Medical Insurance

Having a child means your medical bills will significantly increase. And the increment will start long before the baby arrives. Even if you currently have medical insurance, you might have to upgrade it to a cover that offers maternity benefits as well as any child-related coverage.

Medical insurance is meant to protect you against small or big medical bills. And considering how frequently an expectant mother and newborn will need medical attention, the bills can go over the roof.

You and your partner might also need to consider merging your health insurance into family insurance. This typically results in lower premiums and protects your whole family. Once your child arrives, you should also include them in your cover ASAP. This can go a long way in saving you money.

When starting a family, you should consider comprehensive medical insurance with multiple benefits. For instance, the Absa medical insurance cover is tailored for both individuals and families and offers maternity, inpatient, outpatient, dental, and optical benefits. The scope of cover is comprehensive and extends to take care of chronic illnesses, well baby clinics, wellness programs as well as road and air evacuation.

Personal Accident Cover

As a parent, to be able to provide for a child, you need to ensure you have an interrupted source of income. However, this is not always guaranteed, as you may find yourself incapacitated and unable to work. This can result from an accident that leaves you with a permanent disability or getting critically ill that you are bedridden.

When such unfortunate events occur, you will need to have a way to replace your lost income for the period when you are unable to work and to pay for medical expenses that may be as a result of the accident. 

Accidents do happen to anyone and without any notice. If that happens and you had already taken a personal accident cover, you stand to receive regular payments for the period you are out of work, medical expenses catered for and depending on the policy, you may benefit from;

  • Emergency evacuation
  • Any artificial appliances such as prosthetics, hearing aids and crutches paid for
  • In case of permanent disability, you are paid a predetermined amount
  • In case of accidental death, your beneficiaries are paid the total insured or a predetermined multiple of your salary (e.g. the equivalent of one year’s salary) 

Absa's Personal Accident Cover ensures that you and your loved ones do not suffer hardship when you cannot work and provide for them. The solution provides benefits in case of permanent disability and temporary loss of income due to disablement. Additionally, the policy also covers medical expenses arising from the accident.

Income Protection Insurance

If you are your family's primary breadwinner, an unexpected income loss can devastate your family's financial well-being. Income Protection Insurance can alleviate the financial burden and provide the necessary support to maintain your family's standard of living during a difficult time.

Income Protection Insurance is a type of insurance that will reimburse you part of your income when you lose your income due to retrenchment, company closure, health complications or death. Depending on the scope of your policy, an insurer will replace some of your income for some time or until you get back on your feet.

A solid Income Protection Insurance policy can give you peace of mind, knowing that you and your family are protected in the event of an unexpected loss of income. Without it, you may be forced to dip into your savings or take on debt to make ends meet. This can have lasting consequences on your financial situation.

Life Insurance

Have you ever thought about how you can provide financial security and support for your loved ones even after you're gone?

Life insurance is a vital tool that safeguards the financial well-being of those who rely on you. In the event of your untimely passing, it provides your loved ones with the necessary funds to support themselves until they can stand on their own two feet. This policy offers a lump sum payout ensuring your loved ones are taken care of in the event of your death, permanent total disability or critical illness.

This money can go a long way in protecting your kids' future and providing your whole family with financial stability. For instance, if you had debt such as a mortgage at the time of your passing, the money can be used to repay the loan to prevent your family from losing the house.

The type of life insurance you receive will typically come with different benefits depending on your provider. Absa Kenya, in partnership with top insurance players, offers a bouquet of life assurance policies such as education, endowment as well as the Ultimate Protector policy. These provide several benefits, including natural death, accidental death, permanent total disability, accidental death or disability, critical illness, and accidental hospitalisation. In case of any of those events, your policy pays you or your dependents a lump sum payout or cashback benefits.

Education Policy

As a parent, providing your child with a quality education will likely be one of your top priorities. However, it is also one of the most significant expenses you will incur during your child's upbringing. If your child goes through the current CBC system, you will likely spend up to 17 years funding their education.

When financially planning for a baby, it's important to start shopping for an education policy so that once your child is born, you are already set towards giving them what most parents consider to be the biggest form of inheritance - a quality education. The earlier your start, the better.

Education insurance has three main benefits:

  1. It helps to ease the financial burden of education expenses by providing a source of funding for parents.  
  2. It provides a sense of security for parents, knowing their child's education is secure even if something unexpected happens, such as a job loss or health emergency.
  3. Some policies, such as Absa’s Education Insurance, offer maturity benefits and bonuses. This means you can get benefits annually - and pay annual school fees each year - or at maturity as a lump sum.

What to Consider Before Buying an Insurance Policy

Your Insurance Needs

The types of insurance you need will depend on what you currently have. For instance, if you have group disability coverage provided by your employer, depending on your finances, you can either get personal coverage or skip it. Therefore, consider assessing your insurance needs when planning to have a child and prioritize those that will offer your family financial security.

Assess the risks that could be most consequential in your family; are there certain health conditions that necessitate a special type of policy or a special including the cover? Are you working in a risky job, volatile industry and how many dependents do you have? All these considerations will help you zero on the policies you need and being very knowledgeable about your needs can help you negotiate for a favorable policy.

For instance, if you choose Absa Bancassurance, you get access to a team of

dedicated insurance specialists across the Bank’s branch network who can offer you the support needed - including validating your true insurance needs - for a seamless process.

Compare Insurance Policies

Take the time to compare different plans to determine which one provides the most comprehensive coverage for the cost. Before considering the price, evaluate the benefits of each plan, and think about how much you'll be able to pay in premiums based on your current and expected income. Starting with an affordable policy that offers adequate coverage is a smart idea, and you can constantly adjust your plan to reflect changes in your income, family, and overall needs.

Cost of The Premiums

Insurance covers are quoted differently depending on the provider and the scope of benefits. When buying an insurance policy, you must choose those with premiums you can comfortably pay. Missed payments can cause you losses and your contract to be terminated.

Given that income is limited, you may not always be able to purchase all the insurance covers that you need. But you have every chance to get the best out of the premiums you can afford to pay. Having the right insurance partner can go a long way in helping you find the optimal benefits for the amount you are willing and/or able to spend on insurance.

One of the benefits of getting your insurance covers through Absa Bancassurance Intermediary Ltd (ABIL) is that you can save cost, since the bank negotiates competitive rates with insurance companies to the benefit of its clients. Other benefits of getting insurance through Absa Bank include;

  • Absa provides you with a one-stop shop for your financial needs.  
  • By leveraging on the Banks’ large client portfolio, customers can get preferential rates
  • The bank offers Insurance premium financing (IPF) solutions to support clients with their cash flow needs.
  • Faster credit turnaround time in asset financing is provided
  • Market leverage in claims management
  • Absa can secure your business risks by leveraging on the Bank’s larger brand

Policy Limit  

This is the maximum amount the insurance company will pay when you make a claim. The limit will typically depend on the amount of premium you paid and the insurance term. However, ensure that the limit you sign up for will be enough to cover your needs at maturity or at the point of claim.

The Claim Process 

Purchasing insurance aims to provide instant financial assistance during emergencies. Choosing a policy and partner with an efficient claim process is crucial, ensuring the insurance provider settles claims quickly.

How long will you wait for the claim to be processed? Some insurance companies will offer perks to make the claim process smooth. For example, Absa tells us that its comprehensive covers are supplemented by efficient claims management to ensure a seamless process

Choosing an insurance policy solely based on the premium may not be wise. Analyze different plans and compare claim settlement ratios and processes. Review policy documents and fully understand the terms and conditions of claim settlement.

It's important to buy insurance from a provider known for top notch services for peace of mind in case of emergencies.

The Waiting Period

For some insurance covers, you may need to wait for a while between when you sign the policy document and when you start enjoying the cover benefits or some components of the cover benefits.

If the waiting period is, say, 60 days, it means the insurer will not be liable for any claims incurred within this period and you need to make arrangements to shoulder any potential costs that may arise before this period is over.

Waiting periods are typically common with medical insurance policies where you cannot make a claim or certain types of claims. Accidents and emergencies are usually exempt from this. 

Ranging from 14-30 days for the initial waiting period to 6-12 months for maternity, chronic and pre-existing conditions, you want to be aware of these waiting periods, negotiate if possible and plan accordingly before signing up for a policy. 

The Reputation of The Policy Provider

Before signing up with an insurance company, you should consider how the previous and current customers perceive them. You should also investigate who they are associated with and if they have a good reputation. The best way to get a clear picture is to read reviews online or ask for opinions from trusted peers who have had an experience with the sad company. You can also inquire from insurance professionals or your bancassurance partner, such as Absa.

The Renewal Terms

Can you renew your insurance policy when it expires, and do the terms change? Ensure you discuss this with your insurance provider to avoid surprises in the future. It is also important to know that the insurer might reevaluate you when you want to renew a policy, which can sometimes lead to an increase or decrease in premiums.

It is then very important that you know what factors may contribute to an increase in monthly premiums during renewal so that you can minimize the chances of paying higher amounts.

WRAPPING UP

Insurance is an important tool for protecting your family financially, but it should not be the only one. It's essential to have a diversified financial plan that includes other investments such as liquid assets that can be easily converted into cash and investments that can produce passive income even in your absence. These additional steps can provide an additional layer of protection and security for your family's financial future.

It's also important to regularly reassess your insurance needs, as they can change over time due to various factors such as marriage, the birth of a child, or changes in your financial situation. By taking these steps, you can help ensure that your family is financially protected in the event of unexpected events.

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