At the beginning of 2021, Braidley Ayuma took an educational policy for her son. She agreed with her insurer that she would be paying premiums semi-annually.

“I took the eight year plan, paid the first instalment, and made an order to my bank that the insurer will be deducting the money from my account automatically,” says Ayuma, who is the managing director and founder of Dreams Freelancing Services, a virtual assistance business that offers administration tasks, and social media management.

Six months down the line, Ms. Ayuma noticed that her insurer was not making the deductions from her bank account.

“I consulted a friend who had previously taken a policy with them. She told me that they usually delayed making premium deductions, only to later claim that you did not pay your premiums on time. I was shocked.”

Her alarm bells went off. “I got really afraid of how they would manage my investment if they couldn’t do or facilitate a simple bank deduction for the premiums,” she says.

Ayuma felt that she could not trust her insurer with her son’s future. This red flag caused her to walk out of the insurance policy with a heavy cost. She wrote a letter of termination.

“I listed my complaints and stated that I wanted to terminate our agreement. Once they received the letter, I noticed that they started making deductions again,” she says.

Ayuma lodged a complaint over why deductions were being made yet she had terminated her policy.

“I demanded a refund. They refunded their last deductions, but said they could not refund the first batch of premiums I had paid when I took the policy. I ended up losing the money I had already invested,” she says.

Quite often, taking an educational policy is never as easy as signing on the dotted line, paying premiums, and waiting for the policy to mature. A lot of things can go wrong in between.

You will hardly notice many of these things until it is too late. Ayuma says that before you invest in an insurance policy, an insurance marketer will tell you all the good things you want to hear.

“An insurance agent will say anything to get you on board,” she says. So how can you avoid the booby traps when taking an educational policy?

Education policy

According to Nancy Aketch, the managing director of Taraji Insurance Agency, the sum assured in an education policy and the premiums to be paid are determined before the start of the policy. These may remain fixed throughout the term of the policy.

“The education plan has a saving period which ranges from 5 to 20 years. The duration of this policy will be chosen by you depending on the amount of funds you need and can afford to be paying on a monthly basis,” she says.

Everything you need to know about buying life and medical insurance in Kenya

The best time to take an education policy is immediately after your child is born. This will give you leeway to save a bigger amount than you would if you start when the child is already schooling.

“A parent with a 1-year-old child may only pay about Sh. 3,000 for a Sh. 1 million principle of a 15-year term whilst another parent with a 10-year-old child may pay about Sh. 7,000 for the same policy,” says Rhina Namsia, the founder of The Acemt Consulting, a financial planning and investment advisory firm.

The features:

According to Ms. Aketch, an education insurance cover mainly has the following salient features:

• Entry age for parents is between 18 and 64 years
• Maximum maturity age is 70 years
• Minimum sum assured is Sh. 200,000
• The policy can vary from 5 to 20 years
• Cash Value is 3 full years’ premiums if policy has been in force for at least 3 years

Education policy dos and don’ts

According to Ms. Aketch, these are the dos of taking an education policy:

• Have a school fees target for High School and University
• Pick a timeline between 5 to 20 years when the funds will be needed
• If you are aged above 51 years or taking an education policy at more than Sh. 3 million, you may be asked to take a medical examination which is usually free.

“You may be asked to present common documentation which includes a Proposal Form, your ID copy, your KRA pin copy, Copy of payment method such as Direct Debit Form, Bankers Order Form, or Salary Order Form,” says Ms. Aketch.

According to Ms. Namsia, you must also:

• Know if you want your child to study locally or abroad.
• Identify the institution your child will enroll in, the fees, the course they will take and the country they will study in, the duration of the course, and the possible living expenses.

“You can then calculate how much you actually need by using this simple guide: Take the Current Annual Course fees + The Expected Living Costs X The number of years of study = How much it would cost you today.

With this, factor inflation so that your policy doesn’t lose value,” says Namsia.

According to Ms. Aketch, some of the common mistakes people buying an educational policy make include:

• Failing to read the documents.
• Failing having a proper discussion with your representative about your financial situation and projected school fees requirements for your child
• Buying your education policy plan in the casual telephone way you would buy 3rd party motor insurance.
• Failing to understand your policy’s features and benefits.
• Failing to understand how the policy works as a long term policy

According to Namsia, these are the don’ts you must avoid when buying or shopping for an educational policy:

• Do not include unnecessary coverage: Some educational policies allow you to add extra insurance options like medical insurance and critical illness cover. Be wary of adding too much insurance coverage as the cost of premiums will go up.
• Do not be in a hurry to sign up for a document that you have not fully understood. Take your time to understand the blueprint.
• Don’t forget to research the insurance company you’re signing to. Buying only a suitable insurance plan does not suffice. It is also important to buy this plan from a good insurance company. An ideal insurance company will assist in buying the plan, resolving your queries in an efficient manner, and providing good after-sales services.
• Don’t skip reading the inclusions and exclusions. Understanding what is covered and what is not covered by your education policy beforehand will help you at the time of claim. Also going through the terms and conditions and the ‘Policy wordings’ will give you an idea of whether you can file a claim for a specific situation or not.
• Don’t refrain from getting your doubts clarified. It is possible that you have a few queries or concerns regarding your plan. If so, do not hesitate to get in touch with your insurer to get your queries resolved. Remember that contacting an insurer directly will be more helpful as compared to asking around to get your doubts clarified.

Quick takeaway: Can you lose your money?

According to Ms. Aketch, you can lose your money if you stop paying before the 3 first three years are over. “You lose everything you had paid for,” she says.

She advises that in the event you lose your job or source of income, you request your insurer for a waiver period.

“You can also request for more flexible payment options as your financial position recovers, but you must never stop paying the monthly premiums,” says Aketch.