Simple Insurance Guide for Nigerian Beginners

What Is Insurance? Definition and Basic Concepts

Insurance is a way to protect yourself and your things from unexpected bad events. You pay a small amount of money regularly (called a premium) to an insurance company. If something bad happens—like car accident, house fire, illness—the insurance company helps pay some or all of the loss, as long as the event is covered by your policy.

You can think of insurance as a safety net. When things go wrong, you don’t have to pay everything yourself; the insurer covers certain risks.

Key Concepts: Premiums, Policy, Coverage, Claim

Here are important words to understand:

• Policy: The contract between you and the insurance company. It says what is covered, what is not, how much you pay, how much the insurer will pay.

• Premium: What you pay regularly to keep the insurance active. Could be monthly, quarterly, or yearly. If you don’t pay, coverage might lapse or end.

• Coverage (or Sum Insured): How much protection you get; the limit on what insurer will pay if something happens.

• Deductible (or Excess): The amount you agree to pay yourself before the insurance company pays a claim. If deductible is high, your premium tends to be lower; but you pay more when something goes wrong.

• Exclusions: Things the insurance does not cover. Always in policy documents.

• Claim: Request you make to the insurer when bad event happens, asking for payment or help under the policy.

Principle: Risk Sharing & Indemnity

• Insurance works by risk sharing: many people pay premiums, so funds are available to pay a few who suffer loss.

• Principle of indemnity means you should be put back in the position you were before the bad event (financially), not more. You should not gain from a loss.

Why Insurance Is Important in Nigeria

Facing Uncertainty: Risks We All Face

Unexpected things happen: illness, accidents, fire, theft, natural disasters (flood, storm), vehicle damage. These events can cost lots of money. Without insurance, you may have to pay everything by yourself, which can be hard.

Financial Protection and Peace of Mind

Insurance gives peace of mind: you know you have some protection. It reduces stress about what will happen if disaster strikes. It protects your savings and lets you recover.

Legal and Social Obligations

• Some insurance are compulsory in Nigeria. For example, motor third‑party insurance is required for all vehicles. If you drive without it, there are penalties.

• Businesses may be required to carry insurance: workmen compensation, liability, etc.

Supporting Access to Loans and Assets

If you own a house or car and want a loan, the lender may require insurance. If you insure your assets, you protect both yourself and lenders.

Basic Principles of Insurance under Nigerian Law

Knowing the principles helps you understand your rights and responsibilities.

Principle: Insurable Interest

You must have something to lose for insurance to work. For example, you can insure your own car or your own life, but not someone else’s if you have no connection. Insurable interest means you benefit or would suffer loss if the insured thing is damaged or lost.

Principle: Utmost Good Faith / Duty to Disclose

You must give correct and complete information to insurer when applying. If you hide something important (pre‑existing condition, past claims, etc.), insurer may reject claim.

Principle: Indemnity

Insurance aims to put you in the same financial position you were before the loss, no more. You don’t make profit from insurance. For example, if your TV is stolen, insurer pays the value, not more. Over‑insurance or false claims are not allowed.

Principle: Proximate Cause

The loss must be directly caused by a covered peril, or by something related. If something else far removed causes the damage, might be excluded. For example, flood damage may not be covered if flood was not on policy and only internal leakage got worse.

Principle: Contribution & Subrogation

• Contribution: If you have more than one policy covering same risk, insurers share cost of claim.

• Subrogation: After paying you, insurer may seek to recover cost from third party responsible.

Principle: No Premium, No Policy

You must pay premium for policy to be valid. If premium is not paid, policy might lapse; then you are not covered.

Common Types of Insurance You Should Know

Here are the major kinds of insurance you will come across in Nigeria. They protect different risks.

Life Insurance (Term Life, Whole Life, Endowment)

• Term life insurance: Covers you for a fixed time. If you die in that time, beneficiaries get payout. If you outlive term, no payout.

• Whole life: Covers you until you die, as long as you keep paying premiums. Usually more expensive.

• Endowment policies: Part insurance, part savings/investment. Pays out either on death or at maturity (end of policy term).

Use case: If you have family depending on you, life insurance protects them financially.

Health Insurance / HMOs

• Covers medical costs: doctor visits, hospitalization, surgeries, medications.

• HMOs (Health Maintenance Organizations) are common providers. Sometimes companies provide group health coverage; sometimes individuals buy personal health plan.

This is important because medical bills can be large. Having health insurance prevents paying everything out of pocket.

Motor Insurance (Third‑Party, Comprehensive)

• Third‑party insurance: Covers damage/injury you cause to others/their property. It does not cover your car. This is required by law for vehicles.

• Comprehensive motor insurance: Covers your car too—damage, theft, fire, vandalism, etc.

If you own a car, motor insurance is essential. Many people start with third party to obey law, then move to comprehensive.

Property Insurance (Home, Business, Contents)

• Insurance for buildings (homes, shops) and contents (furniture, electronics).

• Covers damage from fire, theft, storms, sometimes flood. You must check policy for exact perils covered.

Travel Insurance

• Covers emergencies while traveling: lost baggage, flight cancellations, medical emergencies abroad, personal accidents during trip.

If you travel often, either for school or work, travel insurance can save you big costs.

Other Types: Agricultural, Microinsurance, Liability, etc.

• Agricultural insurance: For farmers: crop failure, livestock loss.

• Microinsurance: Small and low‑cost insurance for low income people, with low coverage but better reach.

• Liability insurance: If you are found legally responsible for harm or injuries to others (e.g. in business).

How Insurance Premiums Work: Costs and What Affects Them

How much insurance costs depends on many factors. Knowing them helps you choose wisely.

What Is Premium

Premium is what you pay to insurer to have cover. It depends on risk, likelihood of loss, value of insured property/person, coverage type. If risk is higher, premium is higher.

Factors That Make Premiums Higher (Risk Drivers)

• Value of what you insure: More expensive car or big house = higher premium.

• Location: If you live in flood prone area, high crime area, or risky roads.

• Your age, health, driving record: Younger drivers, those with accidents or bad record, or persons with illness may pay more.

• Coverage type and deductions: Comprehensive cover more expensive than third‑party. Lower deductible = higher premium, etc.

• Claims history: If you have made many claims before, insurer may view you as risky.

How Premiums Are Paid & Calculated

• Usually annually, but some insurers allow monthly or quarterly.

• Insurer will assess “risk profile” of you: how likely you are to claim, cost of claim.

• Discounts or loyalty bonus can reduce premium.

What Happens if You Don’t Pay Premium or Delay

• Policy may lapse (become inactive). No cover during lapse.

• If claim occurs while policy is inactive, insurer will deny.

How to Choose the Right Insurance Policy: What Beginners Should Look For

When you’re new, you might not know what to check. Here’s a checklist.

Step 1: Define What You Need

• What risks worry you most? Health bills? Car accidents? House damage? Life risks? Travel mishaps?

• Think how much you can afford. A basic plan is better than none.

Step 2: Verify Insurance Company & Agent

• Confirm insurer is licensed by NAICOM (National Insurance Commission). Wikipedia

• Check agent or broker is registered.

• Ask for company address, phone, official website.

Step 3: Read Policy Terms & Exclusions

• Always read policy document, not just what agent tells you.

• Look for exclusions: what perils are not covered? Flood? Earthquake? Natural disaster? Theft?

• Know waiting periods (especially in health insurance), deductible, limits.

Step 4: Compare Multiple Policies & Premiums

• Get quotes from 2 or 3 companies. See differences in price, coverage, service.

• Don’t always pick cheapest; cheapest may have many exclusions or low service.

Step 5: Choose Right Deductible & Coverage Limit

• Deductible you can afford. If too high, paying deductible will hurt. If low, premium may be expensive.

• Coverage limit (sum insured) enough to cover what loss would cost. Underinsuring leads to big out of pocket costs.

Step 6: Check Claims Process & Settlement Reputation

• Ask how long claim takes typically.

• Ask for references from people who used the company.

• Check company’s past claim settlement record (if possible).

How to Make an Insurance Claim in Nigeria: Step by Step

Having insurance is good only if claims are honored properly. Here is how to do it right.

Claim Process: Step by Step

1. Incident happens: accident, damage, illness, theft, etc. Document everything (photos, videos).

2. Notify insurer quickly: contact your insurance company or broker. Timely notification is often required.

3. Gather required documents: policy document, receipts, proof of ownership, police report (if needed), medical reports, etc.

4. Fill claim form: insurer will have form. Fill accurately.

5. Allow assessment or inspection: insurer may send adjuster, surveyor, or inspector. Be available.

6. Submit all proofs: receipts, estimates, photos, etc.

7. Review & settlement: after assessment, insurer offers settlement, less deductible. You agree or discuss.

8. Payment: insurer pays via bank transfer, cheque, or to service provider.

What Can Delay or Cancel a Claim

• Late notification.

• Missing or incomplete documents.

• Wrong or false statements.

• Event not covered (exclusion).

• Policy lapsed (unpaid premium).

Pros and Cons of Having Insurance

Insurance has benefits, but also costs. Knowing both helps you decide wisely.

Pros

• Protection from large costs & loss.

• Peace of mind.

• Legal compliance (for things like motor third party).

• Better access to loans or assets because lenders trust insured assets.

• Helps you recover faster after bad event.

Cons

• It costs money regularly (premium).

• You may pay premiums and never claim.

• Claims may be partly denied or delayed.

• Policy may exclude certain perils.

• Deductible might require you to pay upfront.

• Some insurers have poor service or hidden terms.

Comparison: Which Insurance Types Are Most Useful for Students vs Working Class Nigerians

Different people need different types of insurance. Here’s what works for students and working class folks.

Examples: Real‑Life Scenarios and Policies That Made Sense

Here are some stories to show how insurance works in real life. These are fictional but realistic.

Example 1: Student Abroad – Ola

Ola is a Nigerian student studying abroad. She needs travel insurance, health insurance. She chooses travel plan covering medical emergencies and lost baggage, health plan for her current country. She pays premium monthly. She keeps receipts, reads policy restrictions (what clinics / hospitals accepted). When her luggage was delayed, she submitted claim with receipt, airline report, and got paid for replacement items.

Example 2: Young Worker with Car – Emeka

Emeka owns a small car. He buys third‑party motor insurance (required), then adds comprehensive cover. He chooses reasonable deductible. He compares two insurers: same coverage but one had better claim reputation. When accident happened, he followed claim steps quickly and got repair done. He paid deductible, insurer covered rest.

Example 3: Small Business Owner – Fatima

Fatima runs a small shop. She insures her shop structure, content (goods, equipment), and buys fire insurance and theft cover. She keeps records of inventory. One night theft happens, she reports to police, pictures taken, inventory list is used. Insurer pays for lost goods. Because she read policy well, knew coverage, she avoided messy exclusions.

Summary Table Before Conclusion

Conclusion

Insurance may seem complicated at first, but it’s one of the smartest things you can do to protect your money, your health, your family, or your belongings. Beginners in Nigeria should start small, choose what they need, always verify that the insurer is licensed, read the policy carefully, and keep good records.

Don’t think insurance is waste—think of it as a safety net. Well chosen insurance means you don’t have to face a disaster alone. When you are educated about insurance, you can make good choices, avoid bad ones, and get real protection when you need it.