How to incorporate insurance into your financial plan

To build lasting wealth in Nigeria, ensure you obtain adequate insurance before investing in stocks, real estate, or mutual funds. Many individuals skip this essential step, fixating on returns and thereby exposing their families to unnecessary risk.

Insurance is not merely an expense; it is the foundation of any robust financial plan, especially for those with dependents. It serves as the safety net safeguarding all that you build. In investment strategy, defining objectives, understanding risk profiles, and setting time horizons are essential. However, protection of assets must precede these steps. If you support a spouse, children, or aged parents, life insurance must be the priority. Before allocating funds to a trust or opening a broking account, ensure your loved ones are protected from financial hardship in your absence. Building this foundation demonstrates that prioritising insurance is essential. Therefore, insurance must come first before establishing your investment portfolio.

“In investment strategy, defining objectives, understanding risk profiles, and setting time horizons are essential. However, protection of assets must precede these steps. If you support a spouse, children, or aged parents, life insurance must be the priority.”

Why insurance must come before building your portfolio

Consider this: You have N5 million invested in equities and real estate. An accident or illness could leave you unable to provide for your family. Your investments may remain intact, but accessing them could take months or years due to probate. Meanwhile, obligations—school fees, rent, and daily expenses—will accumulate. Insurance provides your family with immediate cash to replace your income, settle debts, and offers crucial breathing space. This is why insurance must be foundational in your financial plan: protect first, then grow. Age or income level does not exempt anyone—begin with protection. To select the right coverage, review the main life insurance options available in Nigeria.

Term life vs whole life: Understanding the options

There are two main types of life insurance you will hear about in Nigeria: Term Life and Whole Life. Term life is straightforward and affordable. You pay premiums for a specific period – say 10, 15, or 20 years. If you die within that term, your beneficiaries get the sum assured. If you survive the term, the cover ends.

Term life is perfect for young families who have temporary needs, such as a mortgage or education costs. Premiums are lower, which means you can buy more coverage. Whole life, also called ‘permanent assurance’, is different. It covers you for your whole life if you keep paying. Whole life premiums are higher, but the policy builds cash value over time. This functions like forced savings. You may borrow from this value in the future. Now that you know these differences, let’s see how insurance fits in your financial plan.

How to use insurance

Do not simply purchase a cover. Follow these steps to design your policy: First, list all financial obligations—mortgage, expected education costs, and major liabilities. Add these figures for your total coverage. For instance, if you have a N30 million mortgage and expect N40 million for schooling over 15 years, choose a whole life policy between N80 million and N100 million. If you pass away, the payout will clear the mortgage, pay for education, and leave extra funds for your spouse. This prevents selling assets at a loss and keeps your plans secure. Many Nigerian insurers offer flexible whole life products. Add riders for critical illness, disability, or funeral costs. Consult a licensed advisor for the best product.

Special benefits of life insurance under Nigerian law

A major advantage in Nigeria is how payouts are made. If you name beneficiaries, the money is not part of your estate. In most cases, life insurance is not subject to probate. The insurer pays your beneficiary—such as your spouse or children—directly. This may take weeks, not years. The payout is also tax-free. No capital gains or inheritance tax applies. So, life insurance lets you transfer wealth easily. Under the Nigeria Tax Act 2025, you can deduct life insurance premiums from your taxable income. This reduces the real cost, like pension and mortgage interest deductions. Keep your receipts and documentation.

Group life insurance: A smart option for organisations

If you run or work for a company, consider group life schemes. The Pension Reform Act 2014 requires employers to provide these. The minimum is three times your annual emolument. Employers pay the premium. Group policies are cheaper per person since risk is shared. Most members don’t need strict medical tests. Costs are lower. Payouts happen quickly if there’s a death in service, so company cash flow isn’t strained. Many organisations offer options like disability or critical illness cover. Clubs or cooperatives can also arrange group coverage. It saves money and shows you value your people. Together, these options create a solid base for your financial plan.

Putting it all together in your financial plan

Here is a simple way to incorporate insurance:

Calculate your needs – income replacement (5–10 times annual earnings) + debts + future goals.

Start with a term policy for immediate high cover if the budget is tight.

Layer a whole-life policy for lifelong protection and cash value.

Review your insurance every 2–3 years or after major life events. Ensure this is completed before pursuing higher investment returns. Protecting your family with robust insurance enables informed investment decisions and creates a safety net. Insurance provides essential peace of mind, reduces investment risk, and allows you to focus confidently on financial growth. With a secure insurance foundation, you are equipped to advance and secure your family’s future through investments.

Final thoughts

Insurance is not about preparing for death; it secures your loved ones’ well-being should you pass. In Nigeria, given the prevalence of traffic accidents, health challenges, and economic pressures, insurance is indispensable. As a young professional or business owner, prioritise protection as your foundational financial step. Term life offers affordable coverage, while whole life ensures lasting security and effective wealth transfer. Group schemes provide accessible, cost-effective options for organisations. With tax advantages and probate-free payouts, now is the optimal moment to act. The outlined steps guide you from evaluation to implementation—do not wait for misfortune. Assess your coverage needs and establish a safety net this month. Your future self and your family will benefit. This information complies with Nigerian regulations. Consult a licensed insurance advisor for tailored guidance. Laws may evolve, and individual situations vary. Start modestly if needed but take action now.

Kalu A. Aja is a Certified Financial Education Instructor and an astute professional with over 27 years of experience spanning capital market operations, treasury, investment, asset management, and occupational pension services. Do follow on X @finplankaluaja1.