Insurance

Week: 3 (Three)

Topic: Insurance

Meaning of Insurance

Insurance is a business arrangement where one party known as the insurer pays for the losses of the other party known as the insured. For such arrangement to work, the insured has to make some periodic monthly payments known as premium to the insurer on the condition that if and when the specified loss is experienced, the insurer must pay for the loss.

Types of Insurance and Policies 

Insurance types are stated according to the type of property or asset that is insured, while under a type of insurance there could be more than one policy. Some of them are;

1. Motor Vehicle Insurance: This insurance type is taken to cover for losses that may arise due to damages resulting from the use of motor vehicles. There are two policies under motor insurance. They are;
2. Third Party Insurance: This covers for damages to another person’s car or property and not that of the insured. It is a compulsory insurance for all motor vehicles driven on Nigerian roads.
3. Comprehensive Insurance: This policy provides cover for damages made by the insured car while being driven. All expenses made to pay for the losses experienced by both the insured and the third party involved is covered by this policy.
4. Fire Insurance: This insurance policy provides cover for losses related to property as a result of fire accidents. It does not cover for human beings who died or suffered injuries due to fire accidents.
5. Burglary Insurance: This is a policy that provides cover for losses experienced as a result of burglary and theft in homes and offices.
6. Marine Insurance: This is an insurance cover for damages experienced due to accidents in marine transport, especially in international trade. There are several policies under marine insurance. Some are;
7. Hull Insurance: This covers for damages to the ship or vessel.
8. Cargo Insurance: Covers for damages to goods transported by sea.
9. Freight Insurance: This cover protects the shipping company’s expected income from a particular voyage.
10. Health Insurance: This insurance provides cover for medical expenses, especially major medical procedures like organ transplant, caesarian section, limb amputation, etc. It does not cover for routine medical check-ups. In some countries, medical insurance is compulsory, especially for immigrants.
11. Life Assurance: This is insurance cover for a human life. Three major policies are taken under this insurance which are;
12. Whole life assurance: This covers for the insured’s entire life. The amount agreed is paid upon death to the insured’s beneficiaries.
13. Term life: This policy provides cover for a specific period of the insured’s life. The agreed sum is paid only if the insured dies within the specified period.
14. Endowment policy: This policy provides cover for the insured’s life. The agreed amount is paid either on a specified date known as the maturity date or upon the death of the insured, whichever comes first.

7. Pension: This is a special type of insurance where the insured provides for himself or herself in years beyond active working life. It means the individual makes monthly savings from the income earned so that when she or he stops working, monthly payments from the money saved can continue for the remainder of the person’s life.

Benefits of insurance

1. Financial protection: When huge financial losses that can destabilize an individual or business’ finance are experienced due to everyday life and business risks, insurance helps to make sure such financial crash does not happen.
2. Risk management: Insurance is a way of managing business and life risk so that one unexpected negative event does not mean total destruction.
3. Peace of mind: When protection for unexpected losses are covered, people generally live life and do business with calmness and assurance.
4. Encourages savings: Due to the fact that insurance demands monthly payments called premium, it indirectly teaches the habit of savings which can be put to good use in other area of a person’s life.
5. Business continuity: Business can continue without interruptions when insurance is in place to make sure any accident does not put a stop to business operations.
6. Access to credit: Life assurance policies like endowment policy can be used to secure loans from financial institutions.

Homework

Talk to your parents about insurance and write your discoveries. Answer the following questions.

1. Are your parents aware of insurance?
2. Do they know the benefits of insurance?
3. Do they have any insurance policy?
4. When you become an adult, would you want to take any insurance policy?
5. Which insurance policy would you take?
6. Why would you take that insurance policy?