An Appraisal of Group Life Insurance in Nigeria

CONTRIBUTED BY JAMILU SAMAILA

INTRODUCTION

Insurance provides financial support and reduces the risk or burden of uncertainties in businesses and human life, and having the right kind of insurance is a critical component of any good financial plan. It provides safety and security against the insured event.

In light of the foregoing, Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. Moreover, the law clearly states as follows;

“There shall be no cover in respect of an insurance risk unless the premium is paid in advance.”^[1]

The above position of the law buttresses that payment of insurance premiums is not the only condition precedent to the establishment of an insurance contract but also the premium must also be paid in advance.^[2]

Regulation and Forms of Insurance in Nigeria

Insurance in Nigeria is regulated by the National Insurance Commission (NAICOM). It is the body in charge of establishing standards for the conduct of insurance business in Nigeria and also in charge of approving standards, conditions, and warranties applicable to all classes of insurance business.

There are two main classes of insurance by virtue of the Insurance Act 2003 to wit;^[3]

Life Insurance Business; and
General Insurance Business.

Life Insurance has further classified into three, namely;

Individual Life Insurance
Group Life Insurance and
Health Insurance Business

While General Insurance Business is classified into five namely;

Fire insurance,
Motor vehicle,
Marine and aviation,
Oil and gas,
Bonds credit guarantee and suretyship insurance, amongst others.^[4]

It should also be noted that in this article, our discussion will only be concentrated on Group Life Insurance.

Group Life Insurance:

Section 9(3) of the Pension Reform Act 2004 makes it compulsory for every employer of labour, with five employees or more, to maintain a life insurance policy in favour of the employee for a minimum of three times the annual total emolument of each employee. The purpose is to make provision for the dependants of the employees who die in service. It involves both public and private individuals and under this law, they are required to pay for pension subsidy in the event of mental or physical disability, death or disappearance while insured. The penalty for default is a fine of N250,000 or one-year imprisonment or both.^[5]

A Group Life Insurance contract covers the members of a particular group. The group could be employees, members of a club, society, association, etc. It provides financial compensation in the event of the death of a member of the group. In the case of employers, Group Life Assurance Policy or Death-in-Service Benefit Scheme is a contract of insurance designed to provide for the payment of a Capital Sum (Sum Assured) to the dependents of an employee who dies while in service of the employer.^[6]

This form of insurance is the cheapest form of Assurance Cover and the cost is borne by the employer. The underwriting requirements are very favourable and not as stringent as in Individual Life Cases.

One of the main benefits of group life insurance in Nigeria is that it provides financial security to the families of employees who may pass away unexpectedly. The insurance payout can help cover funeral expenses, pay off outstanding debts, and provide ongoing financial support for the deceased employee’s dependents. This can be especially important in a country like Nigeria where many people live paycheck to paycheck and may not have savings to fall back on in the event of a family member’s death.

Another advantage of group life insurance is that it can be an attractive employee benefit that can help companies attract and retain top talent. Many job seekers look for companies that offer comprehensive benefits packages, and group life insurance can be a valuable addition to such packages.

However, there are also some challenges associated with group life insurance in Nigeria. One of the major challenges is the low level of insurance penetration in the country. Many Nigerians are still not familiar with insurance and may not understand the benefits of group life insurance. In addition, there may be issues with the affordability of insurance premiums, especially for small businesses or organizations with limited financial resources.

Another challenge is the issue of trust. Many Nigerians may not trust insurance companies due to the perception that they may not pay out claims or may engage in fraudulent activities. This can be especially true in cases where the policyholder is an individual and not a large corporation or organization.

Enforceability and Consequences of Insurance Contract:

Part-payment of insurance premiums cannot constitute a valid and enforceable insurance contract. The reason for this is that the Insurance Act does not contemplate part payment of insurance premiums. What the Insurance Act states is that there must be payment of premium in full and the payment of such premium must be in advance.^[7]

The consequence of non-payment or partial payment of insurance premiums is that there is no valid insurance contract and the same cannot be enforced by a Court of law. For there to be a valid and enforceable insurance contract, there must be –

(a) Payment of insurance premium which must be full.

(b) The payment of the insurance premium must be in advance.

Consequently, once there is non-payment of the insurance premium or part payment of the insurance premium, in the eyes of the law, there is no insurance contract, or at best, the said contract is an illegal contract incapable of being enforced in law. It is therefore advisable that in entering an insurance contract in Nigeria, the premium must be paid in full and in advance as at the time of entering into the insurance contract.^[8]

CONCLUSION

Group life insurance is a form of life insurance policy that provides coverage to a group of people, usually employees of a company or members of an organization. Under the Nigerian Pension Reform Act of 2014, employers are required to provide group life insurance for their employees, which provides a death benefit to the employee’s beneficiaries in the event of their death. The minimum benefit required by law is three times the employee’s annual total emolument.

In addition to providing a death benefit, some group life insurance policies in Nigeria also offer additional benefits such as accidental death coverage, permanent disability coverage, and critical illness coverage.

Group Life Insurance can provide important benefits for employees and their families in Nigeria. However, there are also challenges that must be addressed in order to increase the adoption of group life insurance and ensure that it is affordable and accessible to all Nigerians.