Many Nigerians buy life insurance plans that hardly meet their specific needs. Nnamdi Duru reviews various types of life assurance plans and their benefits
Some people buy insurance the way they buy other assets including household items, cars or even pets. Many others buy, particularly life insurance policies as a favour to insurance agent or to make them earn commissions and keep their jobs.
However, by buying life insurance policies one is protecting his income to provide for those who depend on it or to cover general living expenses should their income cease as a result of death, sickness or redundancy.
Life insurance is needed by anybody who is desirous of providing for his loved ones when he dies or is unable to earn income as a result of death, sickness or disability among other things.
There are two classes of life assurance including, term assurance and whole life assurance.
There are also other types of life assurance policies such as income protection plan, accident, critical illness insurance, accident, sickness and unemployment protection plans respectively.
The type of life insurance or protection policy and amount of cover varies depending on individual's particular circumstances and requirements. Factors which affect needs include age, dependants, level of income and financial liabilities among other things.
Term assurance Term assurance provides cover for a fixed term say the 20 years with the sum assured payable only on death within this period. There are no investment benefits or payments on survival.
This is unfortunately, where many policyholders get it wrong; they expect that since they have bought insurance, they should get something at the expiration of the policy the period.
Term assurance policies are very cheap and offer limited protection and because they are very cheap, more customers go for it without considering the fact that the policyholder cannot personally derive any benefit from it, only his named dependants would if he dies before the expiration of the policy.
Many people who needed income protection plans unfortunately end up buying term assurances because it is cheap and turn around to complain that insurance do not give them anything because they outlived the policy.
Variants of term life assurance polices include level term assurance, increasing term assurance, decreasing term assurance, convertible term assurance, renewable term assurance, joint life assurance and inter-linked term life assurance.
Whole life assurance As the name implies, whole life assurance policies protect policyholders throughout the duration of his life, no matter how long he lives. Unlike term assurance benefits are paid if the life assured dies during the term of the policy or if he outlives it.
This policy will eventually pay no matter how long since there is no time limit to the protection; dependants of the life assured just have to wait patiently till he dies to get the benefits of the policy.
They guarantee lump sum payment when the policyholder dies as long premiums are paid continuously from the start of the policy.
Premium paid for these policies are split to purchase life cover and build up investment reserve. The idea is that the investment growth in the early years subsidises the higher cost of life insurance as people age thereby providing insurance for the whole of your life, as long as you pay the premiums. They have 'surrender value' should the policy be cancelled midway.
Variants of whole life assurance include with profit whole life policy, not with profit insurance, without profit whole life policies and low cost whole life policies.
Endowment insurance Endowment policies are equivalent to saving schemes but the difference is they have life assurance cover in addition. They combine the benefits of a savings scheme with the peace of mind offer by a life assurance policy. Many Nigerians who need this type of insurance policy erroneously rush to buy term assurances because of the cost.
This is the type of policy that banks, mortgage houses and other financial institutions insist that their customers get before extending credit to them. It ensures that the outstanding debts are repaid by the insurer should their customer die before repaying the loan in full.
Normally, if the policyholder dies during the term of the policy, their loved ones receive a lump sum to cover unpaid bills or mortgages and funeral expenses. However, if the policyholder is still alive at the end of the term, usually around retirement or when a mortgage is paid off, they will usually receive a lump sum payout.
Income protection insurance Income protection policies provide incomes that start after a deferred period chosen by the policyholder's if he is unable to work as a result of sickness or injury. These policies usually have a fixed term to retirement age 60 or 65. It provides an alternate income should one lose his means of livelihood.
In essence, the policyholder is worried that losing his source of income for whatever reasons would have an adverse effect on himself and his dependants and after a period agreed the insurer pays him an agreed amount periodically until he gets to the retirement age.
The policy is suitable for people who have to provide for their families and dependants even if they lose their jobs and before getting another one. They need to pay house rent, school fees, medical fees, etc and they need money to be sure that these things are well catered for even if they lose their means of livelihood temporarily or permanently.
Accident and sickness insurance As the names implies, it provides protection should the policyholder be unable to earn adequate income as a result of sickness or accidents. If any of these happen, the insurer comes in to bridge his income gap as agreed under the contract.
Different plans under this category are general insurance products, meaning that the cover here is renewable annually. The insurer has the right to refuse to renew the policy or increase premium payable in the event of a change of circumstances or adverse claims experience.
Private medical insurance Private medical insurance policies pay for the cost of medical treatment both as an in-patient and out-patient. The cover pays for consultants' fees; surgeons' and anaesthetists' fees, nursing, private ambulance and room charges, etc.
Private medical insurances are like the normal medical insurance policies many Health Maintenance Organisations (HMOs) offer their customers or something similar to the National Health Insurance Scheme (NHIS) programme but designed to meet the specific needs of the policyholder.
Long term care Long term care policies make provision for the cost care in a nursing home or at the assured's home. In some developed economies there has been a growing need for long term care cover because of government's problems in funding the cost of care for the elderly.
Senior citizens are not very sure that government programmes for the elderly would adequately met their medical needs in future as such they buy long term care insurance to take care of them when as they grow old in life.
Critical illness insurance A critical illness policy covers the policyholder in the event of a pre-determined illness or disease. Some of these illnesses are such that would make it very impossible for the policyholder to earn a living normally including but not limited to stroke, cancer, etc.
The insurer and policyholder agrees on the illnesses seem to be critical in any situation and should the policyholder suffer from the named illnesses, the policy pays benefits as agreed by both parties.
Redundancy insurance This type of policy provides an alternate income for the policyholder should he lose his job as a result of redundancy.
It is important to note that the policy does not pay when one voluntarily retires or resigns from his job for any reason. However, if the policyholder's employer carries out a redundancy or retrenchment exercise and he is affected, the policy provides alternative income until he gets a new job. There are other conditions attached to encourage the policyholder to look for another job.
Funeral insurance This plan is also called "Over 50s plans". It is designed to cover funeral costs for the policyholder. Premiums are usually guaranteed for life and payouts are usually small. This policy is not popular in Nigeria but it ranks among the fastest selling policies in South Africa and many other countries.
Buying right Buying right when it comes to life assurance involves getting the right products that suits ones needs and at the best prices too. The key to buying right is shopping around for different products, critically looking at their benefits and not just considering the prices.
There is no "one size fits all" option when it comes to life insurance because the peculiar needs of individuals in vary according to their ages, social groups, social class and economic realities.
The right life insurance policy to choose depends on individual customer's circumstances and the best way to go about it is to first understand the different life insurance policy types before zeroing in on any one.
"Don't buy on price alone. Look at policy coverage and extras within the cost to ensure you are getting the best value for money and the best coverage," experts warn.
Source Thisday
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