If you live in a free market society, buying insurance will become almost unavoidable at some point.
It doesn’t matter whether you’re an employee or not – insurance is either mandatory or obligatory at some point.
In light of this, I have compiled a list of 10 important things to consider before buying insurance.
Never buy insurance for things you can afford – this may seem like a common rule, but it is often overlooked due to increased marketing pressure from friends and family.
There’s no point in buying insurance for things like your phone or TV, as they are considered consumables and can be easily replaced. Insurance should be for assets that you cannot easily afford to replace, such as a car or a house.
Buy insurance when it is statutorily required – the government requires that we take out insurance in certain cases, which can affect both companies and individuals. It is important to identify these requirements and abide by them, as the cost of not doing so can be more than the cost of insuring.
Life insurance is mandatory for government employees – according to Section 9, Subsection 3 of the Labour Act, life insurance policies are mandatory for government workers (civil servants) and the military.
If you are a civil servant, the government should be contributing to a life insurance policy for you. It is important to find out the value of the policy and who the beneficiaries are upon your death. If you feel the policy is not adequate, you can contribute voluntarily.
Employee compensation is mandatory – The government passed the Employee Compensation Act some years ago, which mandates employees to contribute 1% of their payroll for compensation for injuries in the workplace, mental stress, occupational hazards, and even death. This is valid as long as you are employed.
Motor third-party insurance is mandatory – Motor vehicle insurance is mandatory, as long as it is third-party insurance.
If you decide not to insure your car, you must buy third-party insurance to cover damages made to other cars in case of an accident.
If your car is a rickety one, third-party insurance is probably enough. If your car is expensive, consider getting comprehensive insurance. Comprehensive motor vehicle insurance typically costs not more than 5% of the car’s value.
Get life insurance when you have loved ones who depend on you financially – If you are single and don’t have any dependent relatives, buying life insurance is a waste of money. If you have a rich spouse and a fortune already in place for your family, there is no point in buying life insurance.
You buy life insurance to make sure your family or people who depend on you for survival will not suffer if you happen to die. Since you don’t want them to suffer when you die, you protect them by taking out insurance.
Health insurance can save you a lot of money – Health insurance is available in Nigeria and can save you a lot of money when you fall sick.
For as little as N100k per annum, you can buy health insurance for common illnesses for a family of four. Consider that illnesses like malaria, typhoid, and sore throat are common in Nigeria and can occur when times are hard. Having insurance cover for them is key.
You can only insure your interest in an event – Section 56, Subsection 2 of the Insurance Act allows you to, for example, buy insurance for a show, wedding, or event that has value to you.
However, you cannot make claims if you do not have an insurable interest in the event. As stated above, if you do not have any beneficial interest in a show and you take out insurance on it, you will not be able to make claims if the show defaults.
You cannot take out a life insurance policy on someone you do not have a legal interest in – It is not legal to buy a life policy on someone who is not legally bound to you.
For example, you can only take out a life policy for your spouse or dependant relative as recognized by law. You cannot take out a life policy on your girlfriend, pastor, or village head. This is not allowed. Section 56 of the Insurance Act explains this further.
If your insurance company won’t pay your claim, you can apply to the commission – If you have filed a claim and have received an insurance discharge voucher, the insurance company is required to pay your claim within three months for non-life insurance and 7 days for a life insurance policy.
If you do not receive your claim within this timeframe, you can apply to the National Insurance Commission to pay you the claim directly from the reserve they hold on behalf of the insurance company.
This article was first written on July 2013 and has been updated to reflect more recent information.