Why Nigerians need life insurance

Stories by Adanna Nnamani and Henry Uche

With Nigeria’s life expectancy estimated at about 55 years, concerns over financial security, family welfare and the future of dependents have become increasingly important.

Life insurance is an important financial safety net that protects individuals and their families against the financial consequences of death, permanent disability and other insured events. It is particularly important for breadwinners whose families depend on their income for food, housing, education and other basic needs.

When a policyholder dies, the insurance company pays an agreed benefit to nominated beneficiaries, subject to the policy terms and conditions.

This money can help dependents settle outstanding debts, pay school fees, cover funeral expenses and meet daily household needs without immediately falling into financial hardship.

Life insurance also provides long-term financial planning opportunities. Depending on the policy, some products combine protection with savings, allowing policyholders to build funds over time and receive benefits at maturity. Others provide additional cover against critical illnesses and permanent disability.

For business owners, life insurance can provide financial support to keep a business running following the death of its founder or a key employee.

In Nigeria, life insurance also provides protection for employees through the Group Life Insurance requirement under the Pension Reform Act 2014. Section 4(5) requires employers to maintain insurance cover of at least three times each employee’s annual total emoluments.

Ultimately, life insurance helps families prepare financially for uncertainties, protects dependents and provides peace of mind. It is not an investment in death but a commitment to the financial wellbeing of loved ones.

For many Nigerians, the death of a breadwinner can plunge an entire family into financial hardship, making life insurance an important protection against the uncertainties of life.

Although nobody wants to contemplate an early death, the reality is that death is inevitable. Beyond the emotional pain of losing a loved one, families often have to contend with unpaid debts, children’s school fees, household expenses, medical bills and other financial responsibilities previously handled by the deceased.

This is where life insurance becomes relevant. It provides financial support to individuals and their families when death, permanent disability or other insured events occur, helping them cope with the financial consequences of losing a breadwinner or suffering a major setback.

Life insurance is an agreement between an individual or group and an insurance company. Under the agreement, the policyholder pays an agreed amount, known as a premium, while the insurer promises to pay a specified benefit to the policyholder or nominated beneficiaries when an event covered by the policy occurs.

The payment is subject to the terms and conditions of the agreement.

In Nigeria, available life insurance products include term life assurance, whole life assurance, group life assurance, endowment policies, mortgage protection and education assurance plans.

Each serves a different purpose. While some provide financial protection for families following the death of a breadwinner, others combine insurance protection with savings, education planning and long-term financial security.

Despite the importance of these products, life insurance remains poorly understood and underused by many Nigerians. Industry observers attribute this to inadequate public awareness, concerns about affordability, misconceptions about insurance and a lack of understanding of how policies work.

Although there are about 48 insurance companies in Nigeria, only about 10 reportedly focus specifically on life insurance business.

Why it’s important

For Mrs Nwoke Obinna, a housewife and mother of four children, subscribing to life insurance was the best decision he took before he passed on at 59.

“It was like he foresaw his own death. He subscribed to life insurance for us. He started with himself because he was diabetic and all that. So, when he passed on, we had something to fall back on”, she told Daily Sun.

Her story was not so different from Mrs Margaret Ohaeri.

“I’m on life insurance and so are my two daughters. Uncertainties of life are too many to take lightly.

“One needs some protection in case of a sad eventuality”, she said.

For many households, the death of the person responsible for providing food, shelter, education and other basic needs can create an immediate financial crisis.

A life insurance policy can reduce this burden by providing money to nominated beneficiaries after the policyholder’s death, provided the claim meets the policy requirements.

The payment can help families settle outstanding debts, pay children’s school fees, meet daily living expenses, cover funeral costs and maintain some level of financial stability while adjusting to their loss.

An Abuja-based health professional, Mrs Belynda Dario, said life insurance was particularly important at a time when Nigerians were struggling with economic difficulties and uncertainty about the future.

She explained that life insurance offered financial protection and peace of mind because individuals could make arrangements for their dependents before unforeseen circumstances occurred.

Beyond death benefits, some life insurance policies also provide opportunities for long-term savings and financial planning.

Depending on the product, policyholders may accumulate funds over an agreed period and receive benefits when the policy matures. Certain packages also provide protection against critical illnesses and permanent disability.

For business owners, life insurance can help protect businesses against the financial consequences of losing a founder or key employee whose experience and contribution are critical to operations.

Dario noted that life insurance should not be viewed only as a financial arrangement for people who expect to die soon, but as a practical way of protecting loved ones against unexpected events.

Ultimately, she said, it could encourage a savings culture, improve household financial security and help families prepare for the future.

How to enrol

Enrolling in a life insurance policy begins with identifying a reliable insurance company and selecting a product that meets one’s financial needs and circumstances.

The prospective policyholder is expected to provide the necessary personal information, complete the required documentation and understand the benefits, premium payments, exclusions and other conditions attached to the policy.

The insurer then determines the premium based on the policy selected and other relevant factors before issuing the policy after the necessary requirements have been met.

Policyholders are expected to pay their premiums regularly according to the agreed schedule. Failure to meet these obligations could affect the validity of the cover or the payment of benefits, depending on the policy conditions.

Dario advised Nigerians to ask questions and ensure that they understand what they are signing before committing themselves to any insurance arrangement.

She stressed that insurance companies and their agents must explain policies in simple language to prevent misunderstandings when customers eventually need to make claims.

Group life insurance and workers’ protection

Beyond individual policies, Nigerian workers also have a form of protection under the country’s pension system.

The Pension Reform Act 2014 requires employers operating under the Contributory Pension Scheme to maintain group life insurance for their employees.

The cover must provide a minimum benefit of three times each employee’s annual total emoluments.

This means that where an employee dies while covered, the insurance policy is expected to provide financial compensation to the nominated beneficiaries in line with the law and applicable policy conditions.

However, access to individual life insurance remains a concern, particularly for low-income earners, self-employed Nigerians and people working in the informal sector.

Many of these individuals do not enjoy the protection available to employees whose organisations provide group life insurance.

The challenge is how to make life insurance affordable and accessible to people who earn irregular incomes or cannot commit to large premium payments.

Meanwhile, the Director-General of the National Pension Commission (PenCom), Omolola Oloworaran, recently disclosed that the commission had commenced a review of the Pension Reform Act 2014 to address existing gaps and modernise pension administration.

The proposed review is expected to consider ways of making the pension system more inclusive and accommodating more Nigerians.

Challenges discouraging Nigerians

Despite its benefits, several obstacles continue to discourage Nigerians from taking up life insurance policies.

A Germany-based Nigerian insurance expert, Chijioke Amadi, said inadequate knowledge and public awareness remained among the major reasons for the low interest in life insurance.

According to him, many Nigerians either do not understand how life insurance works or have little interest in products whose benefits may not be immediately visible.

For those who already have policies, he noted that experiences had improved to some extent following reforms and the industry’s recapitalisation exercise. However, important challenges remained.

These include delays in claims settlement, high premium costs, inadequate explanation of policy terms, irregular premium payments and poor customer service.

He also identified cases of mis-selling, where some insurance agents and intermediaries provide misleading information or fail to explain the actual benefits and limitations of products to unsuspecting customers.

Such practices can create distrust, particularly when policyholders discover that certain events are excluded from their policies or that they cannot access expected benefits.

Other challenges include; poor documentation, outdated information about beneficiaries, inadequate digital access, low disposable income and difficulties understanding policy exclusions.

Amadi said some policyholders also encountered problems when trying to cancel policies or withdraw accumulated benefits, further discouraging others from embracing insurance.

He warned that these problems could continue to undermine public confidence unless insurance companies improved their communication, customer service and claims administration.

He said: “I think both the insured and the insurer should communicate very well in the best possible language to avoid regrets. Let Nigerians rethink Life insurance at this critical time of our national life.”

Bolstering public confidence

For life insurance to gain wider acceptance, industry operators must address the concerns that have kept many Nigerians away from the market.

First, insurance companies need to improve public education by explaining available products, their costs, benefits and limitations in languages and terms ordinary Nigerians can understand.

Premiums should also be structured to accommodate different income groups, including traders, artisans, farmers, self-employed people and other informal-sector workers.

Equally important is prompt and fair settlement of genuine claims. Families who lose their breadwinners should not have to endure unnecessary delays and complicated procedures before receiving benefits they are entitled to.

Insurance companies must also ensure that policyholders provide accurate information, keep their documents safe and regularly update the details of their beneficiaries.

Agents and other intermediaries must be held to professional standards to prevent misleading sales practices and protect customers from entering agreements they do not understand.

For regulators, stronger supervision and enforcement of industry standards will be important in ensuring that insurance companies remain financially sound and fulfil their obligations.

Ultimately, life insurance is not about expecting the worst to happen. It is about preparing financially for uncertainties that cannot always be predicted or controlled.

With families increasingly exposed to economic pressures and the possibility of losing their main source of income, Nigerians may need to look beyond their immediate financial needs and consider how their loved ones would cope in their absence.

The real value of life insurance is not simply the amount paid as premium or the size of the policy. It is the financial protection it provides when families need it most.