The Role of Insurance and Pensions in Planning for Key Life Events

By Doreen Silungwe

Life has a number of key life events and most can have a big impact on your finances. Some of these key life events that have an impact on finances include getting married, having children, education, health, acquiring assets, starting a business and retirement. Todays’ column will therefore focus on the role that insurance and pension can play in meeting financial costs associated with key life events.

What is the role of Insurance in coping with key life events and what are the various types of insurance products available in Zambia?

Insurance is an important element of any sound financial plan. Various insurance policies protect you and your loved ones against the cost of accidents, illness, disability, income loss and death. Insurance can also encourage prevention and safety measures, provide investment capital, and help to reduce anxiety at personal level. It is a life’s necessity but probably the least-understood financial product especially here in Zambia.

Until something happens, such as a car accident, an illness, or the death of a loved one, paying for insurance may seem like buying something you will never use. However, even if you do not make a claim, insurance is an investment in your future, as important as saving, pensions and personal investments. Some financial planners even argue that you should have an adequate insurance safety net in place before considering investment strategies.

Insurance protects you against losses you cannot afford by transferring the risks of a person, business, or organization to an insurance company. As the insurance consumer, you pay an amount of money, called a premium, to the insurer to transfer the risk. The insurer pools all its premiums into a large fund, and when a policyholder has a loss, the insurer draws funds from the pool to pay for the loss.

The insurance decisions you make should be based on your family, age, and economic situation.  

There are two types of insurance; general (short-term) and long-term (life) insurance. General insurance has to do with insuring of assets such as motor, homeowners, building, machinery etc. Long-term insurance covers people and includes policies such as health, funeral, education, life etc. Long-term insurance, for example, is a necessity if you have a spouse and children as you would want to ensure that your family is well taken care in the event of loss of income through death, disability or otherwise.

The 31 licensed insurance companies in Zambia have several insurance products on the market to meet various needs. These include education policies, which help you to plan for your children’s education, motor, medical, funeral, business related insurance policies, agriculture, property, marine and endowment plans that can help you to save for a long period.

What is the role of pensions in coping with key life events?

Planning for retirement is equally very important in financial planning, as you will one day have to retire. You therefore need to plan on how you will live when you retire from gainful employment or business. One way in which you can plan for retirement is by having a pension. A pension is simply an income that you earn when you retire. They are different types of pensions and these include the National Pension Scheme (administered by NAPSA) and private pension scheme established by employees. Individuals can also set up personal pension plans with pension fund administrators or insurance companies. Some reasons for planning for retirement include:

  1. Increase in life expectancy: We are now living longer due to improved medical and healthcare, and therefore the need to have enough funds that can sustain longer life as you will still have expenses to meet.
  2. Change of social structures:  Social structures have changed and there is less support from the family. Children still do support their parents and relatives but not at the level that it was in the past. There is therefore the need for a financial backup.
  3. Rest and relaxation: After fulfilling all your responsibilities, you may want to build a retirement fund to go on holidays, to pursue a hobby etc.

In conclusion, it is important to always plan for key life events in order to manage the attached expenses. Without a proper financial plan, you may find certain key life events challenging, for example failing to send your children to college or university.

And remember to always use a financial entity that is licensed either by the Pensions and Insurance Authority (PIA), Securities and Exchange Commission (SEC) or the Bank of Zambia (BoZ).

For comments or questions, send us an email at pia@102.23.123.62 or follow us on our Facebook page, Pensions and Insurance Authority.

You can also call us on 211-251 401/5 or 0977-335809 or 0965-255136.

For complaints, kindly use the following details:

Pensions-related complaints: Mobile: 0950-136663, Email: pensions@102.23.123.62

Insurance-related complaints: Mobile: 0950-136662, Email: complaints.insurance@102.23.123.62

The author is the Communications Manager at the Pensions and Insurance Authority.