Introduction

Did you know that compared to over 70% of people in developed nations, less than 5% of Nigerians have any kind of insurance? A major reason is because most people don’t understand the terms and conditions. To a lot of Nigerians, reading an insurance policy can feel like scanning through the terms and conditions of an application , you might scroll, nod, but deep down, you barely do understand. Terms like , premium, deductible, coverage , might seem like a scam or decoding of a foreign intimidating language.” This lack of understanding often leads to mistrust, poor decision-making, or complete avoidance of insurance.

This blog post explains the most common and likewise, important insurance terms that every Nigerian should know to make smarter financial decisions and get the coverage one actually needs. 

1. Premium
This is an amount of money paid every month, three months or every year like a subscription to the insurance company to keep your policy active. Premium vary based on age group, insurance type, coverage type, circumstances and risk profiles. “The annual premium for health insurance for a household of four is ₦60,000. Their premium is the ₦60,000.”

2. Policyholder

Definition:
This is the person who owns the insurance policy. The policyholder can and may not be the one who the insurance protects ( the insured). An insurance policy can be bought for your children, your children become the insured and you the parent, is the policyholder. 

3. Insured / Life Assured

Definition:
The insured is the one being covered by the insurance, either life insurance, health, property, travel or business.  In the case of a life insurance policy, after the death of an insured, the beneficiaries of the the insured receive the insurance.  

4. Coverage / Sum Assured

This is the total amount the insurance company agrees to pay in the event of a covered loss or claim.
The coverage determines how much your family or business gets in case of a valid claim. More coverage equally means higher premium payments. 

A life insurance policy with ₦5 million coverage means your loved ones will receive ₦5 million if you pass away during the policy term.

5. Deductible / Excess

A deductible is a mandatory amount you must pay for the insurance company to cover the remaining sum. It’s common in motor and health insurance policies. It can be likened to the part of the bill you must settle before your insurance helps out. The higher the deductible you choose, the less you pay for your premium every month, but the more you’ll pay from your pocket if something happens. If your car insurance deductible is 10%, and an accident causes you ₦500,000 damage, you’ll be required to pay  ₦50,000  before your insurance company steps in to cover the remaining ₦450,000. 

6. Claim

A claim is a formal request to the insurance company for payment that is backed by the policy terms made.

If you have an health insurance for a covered event such as a case of an accident or hospitalization, the insured can file a claim to get reimbursement for cost spent or get the bills covered. 

7. Beneficiary

This is seen more in life insurances, where the beneficiary or beneficiaries  receives the insurance policy benefits, especially after the death of the insured. It’s a way to ensure a person’s loved ones are supported . “A father files for a life insurance policy and on passing away, the beneficiaries —his wife and children receive his insurance benefits”. 

8. Underwriting

Underwriting is an evaluation process of checking out your eligibility for an insurance policy. It involves assessing risk profiles, health, age, occupation, and lifestyle.  It determines the amount of premium and qualification for policy type. A soldier (high-risk worker) may be assigned higher premiums than a freelancer. 

9. Exclusions

Exclusions, just as the name implies are events outside the insurance conditions , and are not covered by the policy. Going cautiously through the terms and conditions ( fine print)  helps one understand what is outside the policy. This is a common source of dispute in Nigeria when people expect compensation for excluded situations.
A health insurance policy might exclude surgeries or permit only a major surgery to be covered by the insurance once. 

10. Policy Term / Duration

This is the timeframe during which the coverage of the insurance remains valid. It is often annual and renewable. Missing the renewal date or intentionally not renewing can terminate your insurance coverage.  

11. Grace Period

This is a short duration after the expiration of your premium payment for you to still make payments without losing coverage. The majority of the insurance companies offer a grace period of 2 weeks to a month to pay the premium.
“If the grace period is 2 weeks and the premium was due on the 2nd of June but paid on the 13th of June, your coverage continues.”

12. Lapse / Lapsed Policy

When there’s a failure to pay or renew a premium within the grace period and the coverage ends, it’s called a lapsed policy. If this occurs, the insured or policyholder might lose coverage and possibly restart a policy again.

13. Riders / Add-Ons

These are more like makeshift customizations and optional benefits you can include in your insurance policy. It gives allowances for extra coverage, for instance , a health policy that allows a large sum to be paid out in the case of critical hospitalizations.

14. Indemnity

This operates as a principled policy in which after a loss, the insurer restores you to the exact financial position or reimburses the exact financial loss, not more of it and not less of it. There’s no extra profit. If your car worth 10 million was hijacked, the insurer pays back exactly 10 million naira. Even if the car value has increased.

15. Reinstatement

This is reinstalling an insured or policyholder whose insurance has lapsed after they meet certain policies and conditions. This is allowed within a specific window and timeframe , often 3 months. The insured may however need to be underwritten again. 

Conclusion

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.

In the end, insurance is about safeguarding you and the people you care about from life’s unforeseen events, not just about paying money to a business. The fact that too many individuals in Nigeria are unaware of the fine print is the true issue, not because insurance is ineffective. Now consider the difference if you truly understood the meaning of all the terms. It’s easier to confidently walk into  an insurer’s office, make the appropriate inquiries, and select a policy that truly benefits you. Knowledge is not only power, it is peace of mind too.

Call to Action

Thinking of purchasing your first insurance policy? Make sure you understand the fine print properly. Bookmark this post, share it with friends, and don’t hesitate to ask your insurer to clarify anything you don’t understand.