If you've ever tried to buy an insurance policy or file a claim, you’ve likely come across terms like premium, deductible, or underwriting. To many Nigerians, these words sound foreign, confusing, or downright intimidating. This lack of understanding often leads to mistrust, poor decision-making, or complete avoidance of insurance.
But here's the truth: Insurance doesn’t have to be confusing.
This blog post breaks down the most common and important insurance terms that every Nigerian should know—whether you're buying health, life, auto, or business insurance. Understanding these terms will empower you to make smarter financial decisions and ensure you get the coverage you actually need.
Definition:The premium is the amount you pay—monthly, quarterly, or annually—to an insurance company to keep your policy active.
Why It Matters:Think of it like a subscription. If you stop paying your premium, your coverage lapses. Premiums can vary based on your age, type of insurance, level of coverage, and risk profile.
Example:If you pay ₦5,000 every month for health insurance, that ₦5,000 is your premium.
Definition:This is the person who owns the insurance policy. The policyholder may also be the insured person, but not always.
Why It Matters:If you buy an insurance policy for your child, you're the policyholder, but your child is the insured.
Definition:The insured is the person whose life, health, property, or business is being covered by the insurance.
Why It Matters:In a life insurance policy, the insured is the person whose death will trigger the payout to beneficiaries.
Definition:This is the total amount the insurance company agrees to pay in the event of a covered loss or claim.
Why It Matters:The sum assured determines how much your family or business gets in case of a valid claim. More coverage usually means higher premiums.
Example:A life insurance policy with ₦5 million coverage means your loved ones will receive ₦5 million if you pass away during the policy term.
Definition:A deductible is the amount you must pay out of pocket before the insurance company covers the rest.
Why It Matters:It’s common in motor and health insurance policies. A higher deductible usually leads to lower premiums but more out-of-pocket cost during claims.
Example:If your car insurance deductible is ₦50,000 and you’re in an accident that causes ₦300,000 damage, the insurance will pay ₦250,000, and you cover the first ₦50,000.
Definition:A claim is a formal request made to the insurance company for payment based on the terms of the policy.
Why It Matters:If a covered event occurs—such as a car accident or hospital admission—you file a claim to get compensation or reimbursement.
Definition:A beneficiary is the person (or persons) who receives the benefits of an insurance policy, especially in life insurance.
Why It Matters:Choosing the right beneficiary ensures your loved ones are financially supported if something happens to you.
Definition:Underwriting is the process by which insurers assess your risk profile before offering you a policy. It involves evaluating health, age, occupation, and lifestyle.
Why It Matters:This process determines your premium rate and whether you qualify for a policy.
Example:If you have a high-risk job like oil rig work, underwriting may assign you higher premiums.
Definition:These are conditions or events not covered by the insurance policy.
Why It Matters:Reading the fine print helps you understand what the policy won’t cover. This is a common source of dispute in Nigeria when people expect compensation for excluded situations.
Example:A health insurance policy might exclude pre-existing conditions for the first 12 months.
Definition:This is the period during which the insurance coverage is valid—often one year, renewable.
Why It Matters:Once the policy expires, you must renew it to continue enjoying the benefits. Missing your renewal date can void your coverage.
Definition:A grace period is a short period after your premium due date during which you can still make a payment without losing coverage.
Why It Matters:Most insurers in Nigeria offer a 15–30 day grace period.
Example:If your premium was due on July 1st and you pay on July 10th, you’re still covered—within the grace period.
Definition:This occurs when you fail to pay your premium within the grace period and your coverage ends.
Why It Matters:Once a policy lapses, you lose protection, and in many cases, you’ll have to start a new policy and go through underwriting again.
Definition:Riders are optional benefits you can add to your insurance policy for extra coverage.
Why It Matters:They allow for customization. For example, a life insurance policy might include a critical illness rider that pays a lump sum if you’re diagnosed with a serious illness.
Definition:This is the principle that the insurer restores you to the financial position you were in before the loss occurred—no more, no less.
Why It Matters:You won’t profit from a claim. If your phone worth ₦100,000 is stolen, the insurer pays ₦100,000—not more.
Definition:This is when a lapsed policy is reactivated after meeting certain conditions like paying outstanding premiums.
Why It Matters:Reinstatement is possible within a specified window, often 90 days, but you may need to undergo underwriting again.
Understanding these insurance terms is the first step toward making smarter financial decisions. Whether you're a first-time policyholder or trying to expand your knowledge, these definitions can save you from confusion, miscommunication, and even financial loss.
Insurance is not a scam—it’s a safety net. But to benefit from it, Nigerians need to be informed and empowered. By knowing what terms like “premium,” “claim,” or “coverage” really mean, you can ask the right questions, choose the best policies, and protect your future with confidence.
Looking to buy your first insurance policy? Make sure you understand the fine print. Bookmark this post, share it with friends, and don’t hesitate to ask your insurer to clarify anything you don’t understand. Knowledge is power—and peace of mind.
