Life Insurance Companies versus National Social Security Fund (NSSF)

  

Date Posted: 4/16/2012 6:21:24 AM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

---

LIFE INSURANCE COMPANIES
These are licensed under the Insurance Companies Act. Insurance companies mobilize long-term savings from life insurance premiums. Funds are accumulated out of premiums paid by policy-holders, and from interest and dividends from investment. The claims of policy-holders are paid when due, out of the accumulated funds. The importance of life insurance, with the provision of finance, arises from its ability to accumulate considerable funds. These are usually invested in credit instruments such as bonds and long-term loans.

The Kenya Insurance Industry operates at a free market system. The market system has been free to adopt its own investment policies. The government, however, prefers to have part of the accumulated funds channeled into government-sponsored investments and development projects. The government has established its own life insurance companies, i.e. the National Insurance Company, which ceased to operate due to mismanagement. But there are several life insurance companies which have come up and others are still emerging.

NATIONAL SOCIAL SECURITY FUND (NSSF).
This is similar to life insurance in that funds are accumulated for payment of benefits at a much later date. However, unlike life insurance the scheme provides for old-age benefits. The NSSF is a compulsory savings scheme. It is financed by employer-employee equal-margin-share contribution for the benefit of the employees. 10% of gross wages are contributed subject to the maximum joint contributions of Kshs.200 per month. The contributions are invested in government securities. At present, the scheme covers wage earners and is not covered with government pension schemes. This has largely contributed to investment stock.

NSSF is the largest supplier to the government’s long-term funds and also to the government’s sponsored projects.

---

Next: Agricultural Finance Corporation in Kenya
Previous: Unbalanced diet in our schools.