Monday, August 6, 2018

3 Things Insurance Can Do For Your Business

Insurance and Business go together. Business is surrounded by risks and Insurance addresses the risks surrounding businesses. People view Insurance as an expense rather than a risk transfer mechanism. While the benefits of insurance to business is so glaring, many are still indifferent about it. This post exist to end what seems to be the bias in people’s minds and elucidate to them the benefits of insurance. The benefits of insurance to your business are many.

Many times and over the following question comes from people to us insurance experts: “Why will I pay premium for a one year policy and at the end of that year, I sustain no loss but the insurer never gives me my money back?”

In general insurance business and some Life Assurance Policies, premium payment is once a year. And at the end of the year if the claim does not crystallize the client is not paid anything. This is how general insurance business operates. You should be aware that you did not buy Life Insurance with savings option. This means that once your policy expires at the end of the 12th month and no loss occurred there is no pay out.

Insurance is a risk transfer mechanism based on the law of large number and probability. Insurers collect the money of many and put them in a pool to insure a homogeneous risk. During the period of the policy it is not possible for everyone to sustain losses. At least from the group only a fraction (say 30%) would have claims. The remaining 70% who also contributed to the pool will have their money used to settle those who came for claim. Any balance becomes underwriting profit to the insurer. You can now see that it is injustice to contribute to the pool and seek to withdraw your contribution after expiry. This negates the principles of insurance. 

What is Insurance?

Insurance is a risk transfer mechanism where one person called the insured transfer his risk to another called the insurer in exchange for consideration called premium. The insurer is under obligation to pay the insured if he sustain a loss. Insurance is a silent product. You don’t know what you have until there is a loss (claim). It is not like opening a bank account that you go from time to time to withdraw your money or admire how much money is in your account. It is a totally different ball game. Your policy is only tested when there is a claim. You might be looking at your policy document as an insignificant document but wait until you have a claim. Provided the policy is still running and premium fully paid you get your claim settled pronto. 

What is the usefulness of Insurance to Business?

The usefulness of Insurance to businesses are numerous. For want of time and space we put down these three points:

1. Preservation Of The Bottom-Line

To an entrepreneur the word bottom-line is the most important word. It ensures he get paid, it ensures he is there for years to come, it ensures his doors remained opened for business year in year our. Bottom-line is the profit made during business transactions. If there is profit, the entrepreneur is guaranteed of another year of smooth business operation. Yet, if not then it would be a turbulent year.

How does Insurance assist in preserving the bottom-line?

The entrepreneur confronts business risks daily, weekly, monthly and yearly. It would interest you to know that any of the risks can become a claim. The entrepreneur would be in serious trouble if the claim eats into his bottom line.

For example, if fire gut the main factory of a manufacturing company the outcome will vary. First, if the entrepreneur has insurance he would just call on them. They will assess the claim, exchange correspondences and documents. After couple of weeks or months, the claim would be fully settled. The entrepreneur would re-build the factory and move on. The money to re-build will not come from his over-stretched budget. It would come from the insurance company. Furthermore, during the period of no business because of the fire if he has Consequential Loss Insurance he would get compensated. All his Fixed Cost when the business was down will get paid until the factory is up and running again.

On the other hand, if he has no insurance, he would have to dip his hands into his pocket to fix the damages caused by the fire. It is not going to be an easy task at all, it would affect his funds and savings, it would erode his profit and so on. His strategy would be to pass on the expenses to his customer by increasing the price of his products. That can spell doom on his competitive position in the market. Many customers would leave him for his competitors’ due to the price change. Save yourself the heartache, get your insurance policy now.
2. Keeps Businesses Running

From the example in 1 above, the factory that got engulfed in fire kept running. Have you ever asked yourself why banks branches still open after many robberies? The bank never shakes but rather keeps waxing great. The truth is that all these banks have Money Insurance and other insurances. If there is a robbery, all the bank needs to do is notify his Insurance broker or Insurance company and the rest would be history.

There are factories in this country that have folded up due to lack of Fire Insurance. Many of them could not bound back after major fire incidents. It is somehow hard and capital intensive to make provision for disaster. The best thing to do is to insure the risk.

3. Assists In Proper Management Of Business Risks

There are many risks confronting businesses daily. To counter them you need adequate insurance. For every risk, there is an insurance policy. Below is a list of business risks and insurance policy that can help combat them:


Insurance gives peace of mind to the policyholder. Government agencies need more and more companies to have some form of insurance as a rule for accreditation. (Read Compulsory Insurance In Nigeria for more). To practice as a professional (e.g. Legal, Doctor, Accountants etc) in many fields you need Professional Indemnity Policy. To a large extent you can now see how useful insurance is to your business.

Do not cheat yourself, do the right thing today.

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Friday, December 8, 2017

Motor Insurance Policy Terms You should Know

Certain terms in your insurance policy document, be it motor insurance policy document or others are determinant factors as to if your claim will be paid or not. This post will highlight only four of such.

You have a Comprehensive Motor Policy and are so proud of yourself. Your mind is at rest and all seems good. But, do you know that there are certain terms in that your policy document? Terms your insurance agent might not be patient enough to show you? One thing about such terms is that they are no threat unless there is a loss and you need to make a claim. You will feel betrayed and disappointed to be told that certain terms are standing between you and your cheque.
Here are the terms:

Excess Clause

Excess is the part of each and every claim you as a policyholder is expected to bear. Excess makes you the policyholder to be a co-insurer on the policy. It instills into you, the duty of care i.e. once you know that you are to bear a certain percentage of any claim, it is natural to act with due care. Excess is a big part of insurance and it is available in most policies except for liability policies.
Most insurance officers/marketers don’t like talking about excess because it discourages people from finally releasing their cheques. However, it is better to educate your prospects/clients about it so that they are prepared for it beforehand. They will thank you in future for letting them know rather than quarrel with you. Such act is a reason why most people complain that insurance people are fraudsters. They will not let you know the bitter side of the sweet tale they are telling.
Excess is usually graduated i.e. flat amount or percentage (e.g. N50,000 or 5% of claim, whichever is higher). For example, assuming you sustain a loss of N200,000. You will be expecting the insurer to write you a cheque of N200,000; right? Wrong! Excess must be charged on the N200,000 as follows:

Option A
Excess to be deducted = N50,000

Option B
5% of claim
N200,000 x 5% = N10,000
From the foregoing, the absolute value of N50,000 will be deducted from the claim (the condition is whichever is higher). Therefore N150,000 will be paid to you on the claim, as follows:
N200,000 – N50,000 = N150,000.
On the other hand, if the claim is N1,500,000 the position will be different.

Let see the two options:
Option A
Excess to be deducted = N50,000

Option B
5% of claim
N1,500,000 x 5% = N75,000.00
Now from this, N75,000 is higher than N50,000, so it will be deducted from the claim. N1,425,000 will be the amount payable out of the N1,500,000 as follows:
N1,500,000 – N75,000 = N1,425,000.

It is extremely rare to find a motor vehicle policy without an excess imposed. Nevertheless, the excess can be removed by applying for Excess-Buy-Back.

Excess-Buy-Back is a clause that makes it possible for excess to be removed from a policy at the payment of an additional premium. For instance, a car of N200,000 @ 5% the premium is N100,000. If he requested for Excess-Buy-Back, then it will look like this:
Value                    =        N2,000,000
Rate                      =        5%
Premium               =        N100,000
Excess Buy Back  =        0.5%

Premium               =        2,000,000 x 5%          =        N100,000
Excess-Buy-Back =        2,000,000 x 0.5%       =        N10,000
Total Premium      =        N100,000 + N10,000 =        N110,000

Tires are not covered

Under this policy damage to tires are not covered. It means if you report to your insurer that your tires got damaged because you drove your vehicle on broken bottles or some objects. If you report such, it would be thrown out! Nevertheless, if the car was involved in an accident and your tires are damaged in the process the claim will be paid in full and the tires replaced. In the policy document, this exception is written as:
 “The Company shall not be liable to pay for damage to tyres unless the Motor Vehicle is damaged at the same time.”

Wear and Tear not covered

 Wear and tear, mechanical or electrical breakdown, failure or breakages are not covered. The purpose of Motor Insurance to provide indemnity for any loss or damage consequent upon any accident, hire, explosion or theft. In the policy document, this exception is written as:
“The Company shall not be liable to pay for consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages”
However, a claim become payable if the wear and tear or mechanical or electrical breakdown etc led to an accident. It is written in the policy document thus:
 “The Company will indemnify the Insured against loss of or damage to the Motor Vehicle and its accessories whilst thereon by accidental collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear”

Limit of Liability

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Third Party Motor Insurance in Nigeria

The local parlance, ‘Police-Let-Me-Pass’ is the term used in Nigeria to denote Third Party Motor Insurance Policy. This mandatory form of insurance remains the most enforced out of all the compulsory insurances.

Year after year, motorists renew their vehicle particulars to be on the right of the law. Some people have formed the habit of renewing all their vehicle papers including their vehicle insurances at the licensing office. This habit is not a bad one but surprisingly it might turn out to be, this is because some licensing agents embark on shady deals regarding motor insurance covers. If care is not taken you might get fake insurance papers, so exercise caution when dealing with them. We shall be talking about How To Confirm The Authenticity Of Your Insurance Certificate in our subsequent posts. Watch out!

It is important to note that your Third Party Motor Insurance is more than ‘Police-Let-Me-Pass.’ It will save you a whole lot of heartache and might cause you a tremendous heartbreak if absent. It might seem so insignificant, but there is more to it than you think. This post is written to enlighten you more about your Third Party Motor Insurance.

There are three basic motor insurance covers and these include:
  • Comprehensive Motor Policy
  • Third Party, Fire & Theft Motor Policy
  • Third Party Only Motor Policy
Out of the three, the last one is the minimum insurance required by law for every vehicle owner – which is the focus of this post.

What Is Third Party Motor Insurance?

Third Party Motor Insurance is one of the five compulsory insurances in the country, made mandatory by the Insurance Act 0f 2003. To know more about Compulsory Insurance in the country please read, Compulsory Insurance In Nigeria: What You Must Know?
Third Party Motor Insurance is the minimum insurance cover that every car user and/or owner must possess. Legally, you are not expected to drive any vehicle on any public road without insurance. The policy provides indemnity to Third Parties for death, bodily injury and property damage as a result of accident with the insured’s automobile. The insured in this case if the vehicle owner.

Legal Background

Third Party Motor Insurance in Nigeria has its legal backing in Section 68 of the Insurance Act of 2003. The Act states that: “No person shall use or cause or permit any other person to use a motor vehicle on a road unless a liability which he may thereby incur in respect of damage to the property of third parties is insured with an insurer.”
Under this Act, the penalty for non-compliance of any motorist or driver is N250,000 or one-year imprisonment or both. Note that compliance with this act is total i.e. after purchase it must be renewed at expiry every year. An expired/unrenewed insurance is like no insurance.
Have you seen: Compulsory Insurance in Nigeria: What you Must Know

What is the fate of a person who was hit by a vehicle that does not have insurance or a hit-and-run driver?

Now, a Third Party who got hit by an uninsured vehicle or a hit and run is protected by the National Insurance Act 2003. The protection is provided by Section 78 of the Act. The Act made it mandatory for all registered insurers to make contributions to a security fund administered by the National Insurance Commission. Section 78 (1)(a)(b) states that;
“The fund is to:
  • Be used for the payment of any claim admitted by or allowed against a registered insurer where such claim remains unpaid by reason of insolvency or cancellation of the registration of the insurer; and
  • Be used to compensate innocent individual third parties permanently disabled or killed by uninsured or unidentified drivers.”
The National Insurance Commission determines the level of the fund and proportion of compensation paid in respect of any claim.

What and Who Is Covered?

As mentioned in the definition, this policy covers:
  • Your legal liability to third parties for death or injury to such and any damage to their property or properties from the use of your motor vehicle. The limits of liability is as follows:
  1. Death/Injury – Liability payable is unlimited (depends on the court’s ruling)
  2. Third Party Property Damage – Liability payable is a minimum of N1m
  • Your lawyer’s fees for your legal representation or your driver’s at any judicial proceeding arising from an accident which may give rise to a claim under the policy and any other expenses.

Exclusions – What and Who is not Covered?

Under this policy, you should be aware that this policy does not cover you or your vehicle. Like the name implies, it covers only third parties. Under the Act, a Third Party is someone other than you, your relatives or employees. In a contract of insurance, you are the first party, your insurer is the second party and any other person beside you and those mentioned earlier is the Third Party.
If you need a motor insurance that covers you and your vehicle, then go for a Comprehensive Motor Insurance. More on this in our subsequent post: What Should I Buy: Third Party Motor Insurance vs. Comprehensive Motor Insurance.

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Thursday, December 7, 2017

Comprehensive House-owner/Householder Insurance Is The Best Type of Cover For Your Home

Landlord or Tenant: Who Should Insure the Building?’ was a post that dealt with the issue of insurable interest in property insurance. We concluded that both the landlord and the tenants are obliged to insure the property in their individual capacities. One policy that is designed for the purpose of assisting the landlord and/or the tenant with their insurance rights is the House owners/Householders Comprehensive Policy.

The House owners/Householders Comprehensive Policy is a policy that is effected by the landlord (owner of the building) or tenant(s). The policy applies to both the buildings and the contents. This policy is a package policy due to the fact that it combines the elements of four different insurance classes – fire & special perils, burglary/theft, public liability and personal accident.

This policy is the adequate cover you need either as a landlord or a tenant this is due to the following reasons:
  • The policy is divided into different sections covering different risks. This fact makes the policy the best cover for your home.
  • The policy can be tailored to cover either a landlord or a tenant, so your status is not a barrier.
  • The policy is the most suitable for private dwelling houses.
  • The policy although suitable for private apartments, it can also be applied to office contents of professionals like lawyers, insurance brokers, architects, accountants etc. who use part of their residential buildings to practice their trade.
  • The policy is elaborate in the scope of cover, for example, if an aircraft or mast should fall on a building and cause it to be damaged, the policy will respond.
Structure of the policy
House owners/Householder Comprehensive Policy is structured into five different sections as follows:

Section I – Building (Fire & Special Perils Cover)
This section covers loss or damage to properties by:
  • Fire, lighting, explosion, thunderbolt, underground fire
  • Aircraft or other aerial devices or articles dropped from above
  • Bursting or overflowing of water tanks, pipes and other water apparatus but not septic tanks
  • Riots, strikes, civil commotions or malicious intents of others
  • Hurricane, cyclone, tornado or windstorm, earthquake fire and shock, volcanic eruptions, subsidence or landslide
  • Impact by vehicles, horses or cattle (including resident’s animals)
  • Debris removal or damage to underground services
Section II – Contents (Fire & Burglary Cover)
Content include household goods and personal effects which include jewelries, articles of gold, silver or precious metals, gem stones, work of art and so on. This section covers loss or damage to properties by all elements from section 1 above. It also covers loss or damage to properties by Theft (either by strangers and/or legal members’ theft).

Section III – Additional expenses of alternative accommodation
This section covers the cost of sourcing for an alternative accommodation as a result of the building become inhabitable due to a claim. It also covers loss of rent precipitated by a loss.

Section IV – Public Liability
This section covers liability or legal responsibility to Third Party for death, bodily injury or damage property. Third Party does not include the insured’s family members and domestic staff. For example, if a visitor comes to your house and during the time he was there, your ceiling fan fell on him and he was injured in the process, the policy covers it. Furthermore, if he sues you for damages as a result of the incident, the policy covers the cost of the litigation and the judgement. The limit of liability could be up to N1,000,000.

Read the rest of the post here....

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Landlord or Tenant: Who Should Insure the Building?


As a landlord, have you taken time out to think about the risk your property is exposed to in the custody of your tenants? There are different kinds of tenant: the careful ones and the negligent ones. Many buildings have been set ablaze by the negligence of tenants, and in such cases, the tenants are too financially incapacitated to bear the repairs of the damaged building. The landlords, in such cases, are left to lick their wounds. On the other hands, as a tenant, what measure do you have in place regarding your apartment?
Let us consider this example; a particular landlord was taken to court by his tenant for damage to his (the tenant) properties as a result of a recent fire incident. His landlord counter-sued him for causing the fire while claiming damages. The tenant blamed the landlord for not having the electrical system in order which led to the incident. It seems to be a knotty case. From the preceding, three positions are possible:
  • If the landlord gets convicted that the fire was due to his fault, he will be responsible for fixing the building and will pay the tenant damages and also his inconvenience e.g. cost of getting an alternative accommodation, loss of rent and so on.
  • If the tenant is convicted of causing the fire as a result of his negligence, he would be held responsible for fixing the landlord’s building.
  • If none of them could be convicted of the fire or found equally liable, then they both will have to take care of the repairs of their properties themselves.
Now, the million-dollar question begging for an answer still is: Who should insure the building? The answer is both of them. The landlord and tenants both have insurable interest in the building differently. The landlord can insure the whole building while the tenant can insure his properties within the building and also the legal liability that might arise as a result of loss/damage to the building.
Now, what is the term Insurable Interest?
Insurable Interest is the legal right to insure arising out of a financial relationship recognized at law, between the insured and subject-matter of insurance. What this mean in essence is that for one to insure a property, there must be a relationship with that property. The relationship must either be legal or financial. This means that the owner benefits from the continual existence or suffer deprivation from the loss the subject-matter of insurance.
Watch out for my next post on Insurable Interest.
Now with that knowledge, let us now analyze in details roles of both landlord and tenants regarding insurance.
The Landlord
He owns the building and if there is fire incident he loses everything. That is why he needs insurance to protect himself from financial loss as a result of fire damage to the building. A landlord, therefore, needs to insure more than the tenants because he has a whole lot to lose compared to the tenants. He should not depend on court ruling to recoup his investment because tenants do not have the financial muscle to pay in such case. He should insure for his safety.
The Tenant
He occupies part of the building and if there is fire incident he loses his properties. The landlord sued by the tenant for negligence and will pay if found guilty. He needs insurance to protect himself against such legal liabilities. A tenant needs to insure too because his property and the legal liability over the landlord’s property are at stake.

Read the rest of the post here....

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Robbers Stole My Car! Will My Insurance Help Me?

I recalled an incident that occurred some years back. It happened that a young man was robbed on his was from a party. The robbers snatched his car, and he was left to hitch a ride back home. In anger, he notified his insurer of the incident and demanded a replacement car since he has insurance. His insurers sympathized with him for the loss and to his greatest shock politely informed him that the claim would not fly because his car was not covered! Out of frustration, he decided to sue his insurer, but he lost the case.

The question now is: Why was the man’s claim rejected? Why was his car not covered, since he possesses insurance then he should be compensated?

The scenario above bothers on the issue of uninsured risks. Let us take a critical look at it for better understanding. For the car in question not to be replaced, then it would have been insured on Third Party Only Motor Policy which is the minimum cover available. It is important to know that there are four types of motor insurance which include, Act Only, Third Party Only Cover, Third Party Fire & Theft and Comprehensive. However, in practice presently only three types of coverages issued to vehicle owners which include: 

1. Third Party Only Motor Insurance:

This is the minimum insurance yet. It indemnifies the policyholder for death, injury or property damage to third parties as a result of accident due to the use of the policyholder’s vehicle.
What/Who Is Covered?
This policy covers:
1. The legal liability of the policyholder to third parties as a result of damage to the property of such third parties and any injury or death to third parties from using the vehicle.
2. The legal fees for the legal representation of the insured or his driver at any judicial proceedings due to an accident and any other expenses of the policyholder.
In summary, the following are covered:
  • Other Motorists
  • Members of the public and their properties
  • Pedestrians

What/Who Is Not Covered
The following are not covered:
  1. Any damage to the policyholder’s car
  2. Death or injury to your family members (they are not third parties)
  3. Loss or damage to your properties or that of your family members
  4. Theft of your vehicle 

2. Third Party Fire & Theft Motor Insurance:

This is a type of cover that goes a step ahead of Third Party Only Cover. In addition to all the cover provided in Third Party Only, it is extended to protect the policyholder’s vehicle for loss as a result of fire and theft.

What/Who Is Covered?
This policy covers:
1.The legal liability of the policyholder to third parties as a result of damage to the property of such third parties and any injury or death to third parties from using the vehicle.
2.  The legal fees for the legal representation of the insured or his driver at any judicial proceedings due to an accident and any other expenses of the policyholder.
3.Loss of or damage to the policyholder’s vehicle and accessories as a result of fire, external blast, self-ignition or lightning, burglary, housebreaking or theft.
In summary, the following are covered:
  • Other Motorists
  • Members of the public and their properties
  • Pedestrians
  • Theft of policyholder’s vehicle
  • Loss or damage to the policyholder’s vehicle as a result of fire is covered
 Read the rest of the post here....

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Monday, January 18, 2016

How To Choose A Life Insurance Plan In Nigeria

Life Insurance is all about protecting your future and that of your family/dependants. Life Insurance nowadays is more fashionable because there are many products that involve benefits being payable even before death. There are products for family, kid’s education, capital accumulation, thrift savings plan and so on.
No matter the type of cover you choose, factors ranging from your needs to your age and much more will determine your premium. This post is coming with a purpose of enlightening you on how to purchase a cover that will be of benefit to you.

How To Choose A Life Insurance Plan

Before you fill the proposal form or issue your cheque, the first thing to do it to determine exactly what your need is. How to do this is to look within. Answer basic questions like:
Are you single or married?
Do you have kids and how many?
What are your running expenses?
Can you afford to keep paying the premium?
It is essential to answer these questions because life insurance involves premium payment which is periodical. You are to estimate your living expenses and add the insurance premium and see how it goes. It is important because once you start should be able to sustain your payment without which you will not be able to reap your full benefit. Also answering these questions will go a long way to help in this next step below.

There are different life insurance covers available you can choose from. Here are the basic plans: Term assurance, whole life assurance and endowment plan.
  • Term Assurance: provides cover for a specific period and will only pay out if the life assured dies during the period. It is the most basic of all life assurance policies. However, if the assured survives, no payment is made and the policy expires. There are different types of term assurance:
  1. Level Term Assurance
  2. Renewable Term Assurance
  3. Convertible Term Assurance
  4. Increasing Term Assurance
  5. Decreasing Term Assurance
  6. Family Income Policy
  7. Increasing Family Income Policy
  8. Unit-Linked Term Assurance

  • Whole Life Assurance: is a very simple policy which pays out whenever the life assured dies. This is different from Term Assurance because it is a permanent policy, hence it does not expire. It is more expensive. Whole life is a substantive policy and can be used as security for loans. There are different types of Whole Life Cover:
  1. Non-profit Whole Life Policy
  2. With-profit Whole Life Policy
  3. Low-Cost Whole Life Policy
  4. Single Premium Unit-Linked Whole Life Policy
  5. Regular Premium Unit-Linked Whole Life Policy

  • Endowment Plan: Allows the sum assured to be payable on a fixed date – the maturity date – or on the life of assured’s earlier death. What this mean is that if the assured did not die, the payout will go to him but if he does, it goes to his beneficiaries. Endowment policies are substantive policies because there will be payout at a point in the future and can be used as a security for loans. The following are the types of endowment policies:
  1. Non-profit endowments
  2. With-profit endowments
  3. Low-cost endowments
  4. Low-start endowments
  5. Flexidowments
  6. Unit-Linked Endowments
  7. Pure Endowments
  8. Guaranteed Bonds
Read the rest here