Having Insurance in Nigeria can save Your life and Business. Having an insurance cover is like having a guarantee that you can continue life.
7 Principles of Insurance Companies in Nigeria You Should Know
Having insurance in Nigeria can save your life and business.
However, no smart person gets involved in what they know nothing about otherwise it will be like walking with both eyes closed on a highway.
Before you take advantage of the benefits of insurance, you need to know the seven fundamental principles of insurance that Nigerian insurance companies operate by.
If you are considering buying an insurance cover in Nigeria, then this post will educate you on these principles so that you understand the foundation insurance is built on. This way, you can better relate with the insurance company’s mode of operation before you enter into a contract with them.
Insurance Principle 1: Uttermost Good Faith
The number one and most important of the seven principles insurance companies in Nigeria operate by is utmost good faith.
This means you and the insurance company should have good faith in each other and will enter into an agreement with each other’s best interest at heart.
Your responsibility to the insurance company in Nigerian
You as the insured should tell the insurance company every detail related to what to want to insure. If there is any hidden fact, intention to cheat or fraud or you misrepresent the facts, the insurance contract can be cancelled.
The insurance company in Nigeria’s responsibility to you
The insurance company or insurer needs to make sure that you, the customer fully and clearly understand everything about the insurance cover you want to buy before you pay for the coverage.
Straightforward and ethical insurance companies in Nigeria will not keep you in the dark about the insurance agreement and will see to it that you know your rights and responsibilities.
A fraudulent insurance company will just be concerned about the premium that you will pay them and not take time to educate your better.
Any insurance company that does not answer your questions, don’t buy any insurance cover from them. Find other insurance companies in Nigeria.
Insurance Principle 2: Nature of contract
The principle of the nature of contract is a core insurance principle. An insurance contract is an agreement that starts to exist once a party makes an offer or proposal of a contract and the other party accepts the proposal.
This means that if you go to any of the insurance companies in Nigeria and you say you want to insure your trucks and they agree to sell you the insurance cover for the trucks, then an insurance contract exists.
Insurance Principle 3: Insurable Interest
This principle means that you, the person seeking to be insured must have interest that can be insured in what you want insurance for. It means an insurance company in Nigeria won’t insure what you don’t depend on to make money from or is of zero value to you.
There must be an insurable interest when you buy insurance. For example, a bank that is loaning a customer N5 million has an insurable interest in the life the businessman borrowing the money.
If you are own trucks, for example, you can take out insurance on your trucks. Your family have unlimited interest in your own life as the sole provider.
If don’t depend on something to make a living or it does not add value to you, no insurance company will insure it. So, remember; if there is no insurable interest, no insurance company in Nigeria will sell you an insurance cover.
Insurance Principle 4: Indemnity
Indemnity is compensation against loss or damage. The purpose of the principle of indemnity is to get you, the insured back to the same financial position you were before the loss or damage.
The principle of indemnity states that you the insured cannot be compensated by insurance companies in Nigeria with an amount that is more than your economic loss.
This means that insurance companies in Nigeria are only responsible for giving you just enough compensation in money or kind to replace what you lost and not one Naira more. So, no insurance cover buyer or policyholder should make a profit due to a loss or an accident.
For instance if one of your 3 year old trucks has an accident, the insurance company won’t buy you a brand new truck. They will compensate you up to the value of your 3 year old truck.
This is a regulates how insurance companies in Nigeria do business and it is observed more strictly in property insurance than in life insurance.
Insurance Principle 5: Proximate Cause
Proximate means the ‘nearest cause’ or ‘direct cause’. The principle of proximate cause applies when the loss occurred due to two or more causes or series of causes of damage or loss.
The proximate cause in this situation is the most dominant and most effective cause of loss. That is what will be considered.
Insurance companies in Nigeria will only compensate you for certain kinds of accidents caused by certain kinds of proximate causes.
If you bought a burglary insurance cover, your insurance company will not pay for fire damage. If you want to be protected against loss from fire, you must buy fire insurance cover.
Insurance Principle 6: Subrogation
The principle of subrogation gives an insurance company the right to sue the person who was the cause of the damage or loss on your behalf.
The principle lets you, the insured to claim the amount of money for your compensation indirectly from the third party responsible for the loss.
Of the seven principles of insurance, this principle is the most difficult to understand because it deals with the ability to sue to court or file a lawsuit to recover the amount of loss
An insurance company will “lose” money when you are paid your claim, but they can “gain” the money back by suing the person responsible for the loss or damage.
For instance, if your truck gets damaged by a bulldozer in a road accident due to reckless driving of the bulldozer driver (third party), the insurance company will pay the indemnity for your loss and will also sue the bulldozer driver to get back the money they paid you as claim.
Insurance Principle 7: Double Insurance
Double insurance means buying insurance cover for the same property either with:
- two different insurance companies or
- the same company under two different policies
Legally, insurance companies in Nigeria allow you to buy double insurance especially if you are worried about multiple proximate causes like losses due to burglary and fire. However, you can’t get compensated for more than the total cost of what you insured.
The principle of double insurance prevents you (the insurance buyer) from making a profit in situations where you are allowed to buy two types of insurance covers.
You as the insured cannot get more than the value of the actual loss and cannot claim the whole amount from each of the insurance companies.
This means that you will not get twice the value of your truck just because you paid for burglary and fire insurance after you lose the truck to either fire and/or burglary.
Make sure you don’t miss the demandsupplier series on “Be Protected – What You Need to Know About Insurance in Nigeria-3”.