ESTATE PLANNING 101

Africans, Kenyans in particular, consider death talks a taboo. Too many people do not plan their legacies. They shelve it because they do not think they have acquired enough or are just not old enough. As a result, they die intestate, without having thoughtfully planned for the distribution and disposal of their assets and those left behind will have to bear the burden of picking up the pieces. We cannot predict our life expectancy, and illness and accidents can happen to anyone, irrespective of age. Therefore, one needs to plan on who would make decisions, for them, about their finances and health if they are incapacitated. This article dives into estate planning and its fundamentals and states why you should consider it. ESTATE PLANNING Estate planning is setting up structures that help distribute your assets in the event of your death or incapacitation. It also involves the management of an individual’s estate (financial obligations) when they become incapacitated. Assets that make up an estate can include houses, stocks, bonds, cars, art, collectibles, life insurance, pensions, and debt. COMMON TERMS IN ESTATE PLANNING Estate- All the money, property, and assets you own, at the point of your incapacitation or death. Estate Planning- Putting structures that safeguard, manage, and distribute your property and assets in the event of your death or incapacitation. Will- Legal document containing declarations of a person’s wishes or disposition of his property after their death. Trusts- A relationship where a person/ entity (Trustee) holds and manages property and assets for the benefit of a third party (Beneficiary).  Testator- Individual who creates a will. Settlor- Person/ entity that creates a trust. Trustee- A person/ entity appointed to hold and manage property and assets in a trust for the beneficiary’s benefit. Trust Deed- A legally binding agreement that governs the relationship between the settlor and testator to ensure a smooth transfer of assets to beneficiaries upon settlor’s demise. Beneficiary- Individual/ entity for whom the trust is created. Intestate- Not having made a will before one’s death. Incapacitation- Physical/ mental inability to make informed decisions. REASONS FOR ESTATE PLANNING An effective estate plan is not only good for passing and distributing your assets, but it is also good for: Naming guardians for your minor children’s care and inheritance. Providing for dependents with special needs in your absence. Providing for a surviving spouse and children in your absence. Management of your assets and properties at your incapacity or death. Protection from creditors. Providing for loved ones who might be irresponsible with money. Protection and provision for kids in the event of divorce. ESTATE PLANNING PROCESS The planning includes management of property and assets, passing down assets to heirs, settling taxes and debt, and setting up guardianship for minor children. Here are steps to follow when doing estate planning: List down all your debts and assets. Ensure you include all your physical and financial assets. Make multiple copies of your lists for your beneficiaries. Ensure that your beneficiaries’ details are up to date.  Choose your estate administrator.  Write down your will and set up a trust. Seek professional help from your financial planner/ estate advisor. Review your plan regularly. ESTATE PLANNING OPTIONS There are two options one can consider in estate planning:  Wills Trusts WILLS A Will is a document that entails legal declarations of how a person’s property should be distributed after their death. It also includes details on the handling and custody of minor children. Once the will is drafted, the testator usually names an executor, the person they want to oversee the probate process, whose responsibility will be to administer the fulfillment of their wishes as expressed in the will. TRUSTS On the other hand, a trust is a legal arrangement that allows you to set up your assets to be held and managed by another person/entity on behalf of your beneficiaries. The appointed entity is usually responsible for ensuring that your estate will be overseen and executed according to your wishes. There are three important entities in a trust: The Settlor- Person or entity transferring the property. The Trustee- Person or entity appointed to hold the properties for the beneficiaries’ gain. The Beneficiary- Third party that receives the benefits of the transferred property. Trusts are created through a trust deed. The trust deed ensures the property transfer to the beneficiaries fulfills the settlor’s wishes. It’s also important to note that once a settlor transfers property to a trust, it will no longer be considered part of the settlor’s estate. WILLS VS TRUSTS Wills and Trusts perform a similar function however, they have differences in terms of structure, purpose, and functionality. The table below highlights their key differences. WILLS TRUSTS Property Transfer only happens after the testator’s death. Ownership is maintained until death. Subject to the Probate process. Displayed in public records. The testator cannot be a beneficiary of the will they have created. Accessible to debtors/ creditors. Assets transfer can take place even when the settlor is still alive. Ownership is transferred to trust. Not subject to the probate process. Private & not kept on public records. The settlor can be a beneficiary of the trusts they create. Inaccessible to debtors and creditors. It is important to note that setting up a trust or a will is dependent on your specific needs and goals. A will is suitable if you are only intent on creating an estate plan for distributing assets to your heirs, upon your death. But, if you are purposeful in protecting and growing your family assets, then a trust would be a better fit for your estate plan. Estate planning is not just for the rich and ultra-wealthy. It is vital for securing your legacy and protecting your loved ones.  Knowing you have a proper plan in place will give you and your family peace of mind. It will also ensure a smoother transition and minimize potential disputes.  Do not let your family get caught off guard and unprepared when strategy strikes. 1

ENDOWMENT PLANS

Life Insurance products uptake seems to be on the rise and lately, people have been particularly keen on investing in products that will not only provide coverage but also help them grow their money. One such product is an Endowment plan. Below we look deeper into what it is, how it works, and the type of goals it can help you tackle. WHAT IS AN ENDOWMENT PLAN? An endowment plan is a temporary life insurance plan that combines the elements of savings and protection. It provides a life cover as it helps you grow your money and pays out specific maturity benefits at the end of the premium paying term. The life cover in endowment plans provides coverage in the event of the insured’s death. Most endowment plans provide returns that are fixed at the time of the purchase of the policy and pay out a lump sum amount at maturity. However, some endowment plans help you accumulate your funds slowly and payout partial benefits during the policy’s term. HOW DO ENDOWMENT PLANS WORK? Endowment plans allow policyholders to pay regular premiums over a predetermined period (the policy term). The premiums are then divided into two parts: one portion is used to provide life coverage and the other is invested by the insurance company. The amount invested will then be paid out as a lump sum amount at maturity together with any bonuses accrued. The life cover ensures your loved ones are provided for in the event of unfortunate death while the cash benefits or partial payouts ensure you can still achieve your financial goals and sort out your financial needs during the policy term. They provide you with a fixed return, the maturity benefit amount, at the end of the tenure of the plan. The maturity amount is always fixed at the point of purchase and is free from any market fluctuations. In the event of the insured’s death, the beneficiaries will receive the life cover amount and all the benefits payable as specified in your plan. FEATURES AND BENEFITS OF ENDOWMENT PLANS Life Cover– Guaranteed lump sum payout to your beneficiaries in the event of incapacitation, critical illness or death. Additional Rider options– Most endowment policies have optional additional benefits such as accidental and disability riders, and waiver of premium at a minimal fee. Partial maturity payouts– Some insurance companies offer Anticipated endowment plans that guarantee cash payouts during the policy’s tenure. Maturity benefit– Guaranteed lump sum payout (the sum assured) plus any accrued bonuses or benefits if the policy remains active until the end of the premium paying term. Flexibility– Premiums can be paid monthly, quarterly, semiannually, or annually, as per your convenience. Tax benefit– Tax relief of 15% of the premiums paid, up to a maximum of Ksh.60,000 annually. Investment growth– A portion of your premium is invested by the insurance company to help grow your savings. Policy loans– Some insurance companies offer policy loans against the paid premiums from the third year. Attractive annual bonuses– Other insurance companies offer annual bonuses during the policy’s lifetime in addition to the maturity benefits. Low risk– Safer compared to other investment plans. Barely affected by market fluctuations since the returns are fixed at the point of purchase. USES OF ENDOWMENT PLANS Endowment plans are generally suitable for long-term financial goals including: Education Planning Family land purchase Mortgage Payment Dowry payments and many more CONCLUSION An endowment plan is a worthy investment for people who want to stay covered while saving for other financial goals. It helps create a risk-free savings corpus and provides financial support for your loved ones in case of unforeseen events. 1

UNDERSTANDING THE WORK INJURY BENEFITS ACT (WIBA)

In today’s unpredictable world, ensuring financial security in the face of accidents or workplace injuries is paramount. WIBA compensates employees for work-related injuries and diseases contracted during employment in line with the Work Injury Benefits Act, 2007. This article explains the complexities of WIBA and its significance. BENEFITS Death – Death that arises following an accident at work or an occupational disease as specified in the WIBA Act. The employee should be on duty during the time of death or contraction of the illness. Permanent Total Disablement – Disability resulting from work accidents that affect your ability to work for the rest of your life. The benefits will be paid out according to the percentages set in the first schedule of the Work Injury Benefits Act, 2007. Temporary Total Disablement – Disability that hinders one’s ability to work in their usual work capacity for more than three days. Medical Expenses– These are costs incurred by an employee caused by work-related injuries or illnesses. The limit provided under the policy can be negotiated upon, before the start of the policy. Funeral Expenses – This is a fixed amount paid to an employee’s relative upon his/her demise to ease the financial burden of holding the funeral. Occupational Illness– Provides financial assistance to employees who suffer from health conditions directly attributed to their work environment or duties. COMPENSATION Death – Maximum of 96 months’ earnings. Permanent Total Disablement – Maximum of 96 months’ earnings. Temporary Total Disablement –Weekly earnings for 52 weeks. Medical Expenses – Minimum of KES 30,000. Funeral Expenses – Minimum of KES 30,000. Occupational Illness – Maximum KES 5,000,000. IMPORTANCE OF  WIBA: Legal Compliance: The policy ensures that as an employer you stay compliant and updated with the Work Injury Benefits Act, 2007 which will help mitigate legal risks and non-compliance fines. Financial Security: WIBA ensures that employees and their families receive financial support in case of work-related injuries or disabilities. Peace of Mind: It covers medical expenses incurred from work-related injuries or illnesses. Reduced Financial Liability for Employers: By providing compensation through WIBA, employers can mitigate the financial burden of workplace injuries. This can include medical expenses, rehabilitation costs, and potential legal fees associated with lawsuits. COVER/POLICY EXCLUSIONS: Any injuries sustained outside the scope of employment. Any injury by accident or disease sustained by an employee outside Kenya. Any injury by accident or disease sustained by any employee who is below the age of eighteen years. Willful Misconduct by employee. Legal liability which is not provided for under WIBA. Contractual liability. Liability to employees of sub-contractors. Injury, accident, or disease sustained outside the geographical area. Pneumoconiosis, asbestosis, silicosis and byssinosis. Suicide or attempted suicide. Accidents due to intoxicating liquor or drugs. Mountaineering & Aircrew duties. Others as per the provisions of the Work Injury Benefits Act, 2007. APPLICATION REQUIREMENTS Documents needed: Certificate of Incorporation KRA Pin Certificate Schedule of Employees Information Needed: Nature of Business All locations of the Business Number of employees Nature of work for all the employees Desired limits of liability Nature of contract between employees and employer – contract, permanent employee, temporary employee Annual earnings for each employee   FAQs: What types of injuries are covered under WIBA? Accidental injuries, occupational diseases, and fatal injuries. How long does it take to process a WIBA claim? The claim processing time varies from case to case due to several factors including but not limited to claim complexity, documentation, and investigation. Are all employees eligible for WIBA coverage? The employee coverage depends on the nature of the employment contract and occupation. Will I receive compensation if I get an injury outside work? No, but you can extend your policy to cover employees’ accidental injury outside work. What happens if I am sent on assignment outside the country? Will my cover still be applicable? Yes, the employee will be compensated based on the earnings he/she would have received if they had remained in Kenya. However, if an employee is deployed outside continuously for twelve months, they are not covered. What are some of the examples of occupational diseases? WIBA covers various diseases/illnesses, depending on the occupation. Some of them include poisoning by various substances like nitrous fumes and tuberculosis as a research employee engaged in research in connection with tuberculosis. Am I eligible for compensation if I’m injured while working from home? Yes, this is covered if the employer has given the directive and depending on the circumstances surrounding the injuries. In conclusion, the Workmen Injury Benefits Act (WIBA) plays a crucial role in providing financial security and support to employees in the event of work-related injuries or disabilities. By understanding the scope of coverage, benefits, and application process, employers and employees can ensure compliance with WIBA regulations and access the necessary support when needed. Article by Hadassah Githaka 1

UNDERSTANDING LIFE INSURANCE: WHAT IT IS AND WHY IT MATTERS

In today’s uncertain world, planning for your future is crucial. One sure way of securing your family’s future is through Life Insurance. It is designed to reassure you that your loved ones will be financially cared for if you pass away. What is life Insurance? Life insurance is a contract between you and an insurance company where you pay premiums and in exchange, the insurer promises to pay a sum of money to your beneficiaries in the event of your death or after a set period.  Depending on the type of cover and contract terms, other events such as critical illness and temporary or permanent disability may also trigger benefit payments.  Purpose of Life Insurance The main purpose of life insurance is to provide Financial Protection. It aims to cushion your loved ones against financial challenges and hardships upon your death. Knowing your family will be financially secure when you’re gone provides peace of mind.  How does Life Insurance work? It works by providing a death benefit payout to your beneficiaries in the unfortunate event of your passing. However, the policy needs to be in force when you pass away for the death benefits to be paid out, with the premiums paid as required before you pass.  What does Life Insurance cover? It mainly covers all causes of death, except death by suicide. Depending on the type of cover and insurer, some life insurance policies also provide compensation for: Critical illnesses such as heart attack, kidney failure, cancer, and major organ transplant Illness (comes as a policy rider option) Accidental death Accidental disability What are some of the Life Covers exclusions? Life Insurance exclusions vary depending on the cover and insurer. The typical exclusions include: Suicide Death due to violation of criminal laws Alcohol and drugs-related issues Military or war-related engagements Participation in high-risk sports such as boxing Undisclosed pre-existing medical conditions before issuing the policy. What are some of the Life Insurance rider options? Some of the common life policy riders are: Accidental Death Rider– It pays out an additional amount of death benefit if the insured dies by accident.   Waiver Of Premium Rider– This rider allows waiver of all future premiums if the insured becomes permanently disabled or loses their income due to injury or illness before a specific age. Critical Illness Rider– Provides additional protection in the event of critical illness. It’s paid on the first critical illness diagnosis defined under the policy before a specific age. Most life insurance providers usually pay up to 50% of the sum assured, upon diagnosis, for this rider option. Types of Life Insurance The main types of life Insurance are: Term Life Insurance Whole Life Insurance Endowment Life Insurance   Term Life Insurance Term life insurance provides coverage for the agreed policy term. It pays out the death benefit to your beneficiaries for as long as your policy has not expired, and the premiums have been paid in full. The typical choices for policy lengths are 10,15,20,25 or 30 years and it is renewable on a year-to-year basis. It’s relatively cheaper than whole-life insurance. It has no surrender value, no cash value, and is not permanent. These types of covers only provide coverage for the set period (policy term) if the policy is active.  Whole Life Insurance It’s a type of permanent life insurance that provides coverage for your entire lifetime and pays out the death benefit upon your passing, for as long as your premiums were fully paid when the policy was in force. Endowment Life Insurance Endowment policies include a savings component with a fixed interest rate that builds and accommodates a cash value over time, making it more costly than term-life policies with the same coverage. The cash value does not affect your death benefits upon passing and is accessible as partial withdrawals or policy loans. Unlike term life covers, endowment covers have a surrender value that is paid out when one decides to end the policy before the agreed term ends.   Benefits of Life Insurance Financial Security– Life insurance provides a safety blanket for your family and shields them against financial burdens in the event of your unforeseen demise as the sole breadwinner. Tax Benefits– Life insurance policies are entitled to tax relief on the premium (usually a percentage set by the state). Since the benefits are tax-free, your beneficiaries will also not have to report the money when filing returns after or during payouts. Savings– Life Insurance policies can be used to save for financial goals such as building a new home, college fund, etc. Riders– Riders are add-ons that pay out additional benefits and can help you customize your coverage to suit your needs. Death benefits– Life Insurance policies usually pay out a predetermined amount to the insured’s family in case of loss of life. Life Insurance Frequently Asked Questions (FAQs) What are some of the factors that affect life insurance premiums?  Age– The younger you are, the less you pay because your mortality risk is less in comparison to older individuals. Health– Insurance companies look at health factors such as your medical history, body and weight, risky behaviors, and family medical conditions when determining life insurance quotes. Gender– Women have a longer life expectancy than men thus, they generally pay less than men for life insurance. Smoking status– Smokers generally have higher rates because they pose a bigger risk when compared to non-smokers. Cover length and amount– The type of policy you buy, and the amount of coverage are critical factors when determining the amount of premium payable. Generally, term life covers are the least expensive while whole life covers are the most expensive.   What is a policy rider?  Policy Riders are add-ons that can be bought with a basic insurance policy to provide additional benefits to the policyholder.  Will I incur extra costs for the riders?  Policy riders usually come with an additional cost. However, the premiums are generally low when compared to that of the main policy.  Who is the…

6 COMMON INSURANCE MYTHS DEBUNKED

Insurance serves as a risk management tool. It provides financial security and relieves your family of financial burdens that may arise due to your passing, debt, education, or medical expenses. Despite being an essential tool in risk management, insurance is clouded by myths and misconceptions that have left individuals confused and uncertain about their coverage needs. We have demystified some common myths in this blog to help you gain the clarity you need when seeking insurance solutions. Myth 1: Insurance is Only for the Wealthy or Elderly Insurance is vital for people of all ages and income levels. Whether young or old, insurance can provide financial protection against unexpected events such as accidents, illnesses, or property damage. Myth 2: Insurance is a Waste of Money if you Never Use It While it is true that insurance premiums remain payable whether or not you make a claim, insurance provides peace of mind and financial protection. Just like other forms of risk management, insurance helps mitigate the impact of unexpected events. Knowing you are covered provides some reassurance even if you never need to file a claim. Myth 3: All Insurance Policies are the same Insurance policies vary widely in coverage, limits, exclusions, and pricing. Always carefully review the details of each policy to understand what is and is not covered. Additionally, different insurers offer varying levels of customer service and claims handling, so it’s worth comparing options before deciding. Myth 4: Cheaper Insurance Policies Provide the Same Coverage as Expensive Ones Price is a factor to consider when choosing an insurance policy. However, it should not be the only consideration. Cheaper policies may offer lower coverage limits and more exclusions, which could leave you underinsured. It’s important to balance cost with coverage and quality of service. Myth 5: Insurance Companies Deny Claims to Avoid Paying Out Insurance companies are obliged to act in good faith when handling claims. However, they also need to have procedures in place to assess claims and prevent fraud. In the event of a denied claim, they must provide a written explanation of reasons for denial. Insurance companies always evaluate and pay legitimate claims as per the policy terms. Myth 6: Life Insurance is Unnecessary if You’re Young and Healthy Life insurance is often associated with older adults, but it is also valuable for younger individuals. Younger people tend to have good health and a lower mortality risk, which serves as a factor when determining life insurance premiums. It then results in affordable premiums when compared to the costs charged to older individuals. Conclusion These are just a few of the common myths and misconceptions about insurance. Insurance can be confusing. Consult your agent or financial advisor for information on insurance plans, their coverage limits, benefits, and exclusions when buying insurance. 2

FACTORS TO CONSIDER WHEN BUYING INSURANCE

We have all experienced the pain of doing away with a favorite piece of cloth just because it was not the right fit. You were not keen on your style, body shape, fit, material, price, and budget. So now you must sell or give it away because it does not suit your wardrobe, or it does not just fit. Similarly, you will have to terminate your policy before its maturity if you are not clear on certain factors before purchasing it. The insurance market is large, and insurers offer different plans and products. Buying insurance can be arduous, and choosing the right policy is essential because it will affect your finances, health, and well-being. This article illuminates factors consumers should consider when buying insurance plans. What to consider when buying an insurance policy To decide on the best insurance plan for you, here are some factors you need to consider: Needs and goals – Understanding why you need the cover will tell you what needs to be in it. It will also help you when comparing policies. Consider factors such as your age, health status, financial situation, and dependents you may have. For instance, a young single individual may have different needs and types of coverage compared to a married couple. Coverage – Insurance covers vary widely in terms of the coverage they provide. Research the different types of plans available (life insurance, motor insurance, health insurance, home insurance) and understand what each type covers. Premiums – Compare premiums from different insurers to find the most competitive rates but remember that price should not be the only factor you consider. Ensure your insurance providers maintain a balance between cost, coverage, and quality of service. Cheaper insurance might seem appealing upfront but might cost you more in the long run if it doesn’t provide adequate coverage. Cover limits – Coverage limits dictate the maximum amount the insurer will pay for claims. Pay attention to the coverage limits offered by each policy. Ensure that the limits will be sufficient to protect your assets and your family’s financial security. Rider options – Insurance companies offer optional add-on coverages that can be purchased to customize your policy to suit your needs. Carefully review these options to determine if they are worth the additional cost based on your circumstances. Policy exclusions and limitations – Be aware of any exclusions or limitations in the insurance policy that could impact your coverage. Exclusions may include pre-existing conditions in health insurance policies and natural disasters. Understanding these exclusions upfront can help you avoid surprises when filing claims. Policy terms & conditions – Take time to carefully read and understand the terms and conditions of the insurance policy, including any limitations, conditions, or exclusions. Pay attention to details such as waiting & coverage periods, renewal terms, termination of policies, and requirements for filing claims. Reach out to your agent or insurer in case of any clarifications. Choosing the right insurance is not easy. Always start by asking the right questions. Seek help from an insurance intermediary or financial advisor for guidance on the different types of insurance available and which one best suits your needs. Keep these tips in mind. Remember to review your insurance needs periodically and adjust your covers accordingly where necessary. 1