Are you still shrouded with ignorance about insurance?

Many people lack knowledge about what insurance means and its benefits in our daily lives and activities. And this explains why the level of insurance penetration is low in this part of the world. The consequence therefore is that people will continue to lose valuables when there is no replacement or compensation when losses occur. Here, this article explains primary concepts about insurance.

What is insurance?

In its primitive understanding and in simple language, insurance is the (mutual/unwritten) agreement between two or more people to help each other in the time of trouble. In other words, it is the agreement between two or more people that brings about the assurance that, no matter what happens, each party will always be taken care of in time of trouble.

Insurance can also be described as a practice where people who are exposed to identical risk situation contribute money into a common pool out of which the unfortunate few that suffer loss are compensated. Insurance is therefore a form of security against the risk of loss.

How does insurance work?

Insurance is based on the theory of probability and the law of large numbers. What this means is the since the number of people making the contribution is large, it is possible to build a huge pool of funds from their small individual contributions. Again, it is very unlikely that all contributors to the funds would suffer loss at the same time. The few who actually suffer loss are therefore easily compensated from the pool.

What are the benefits of insurance?

Insurance provides you with peace of mind. When you know that someone else is sharing your risk, you can sleep with both eyes closed. Insurance also enhances businessmen’s confidence to do business as they know that is the event of an unexpected loss, they will, at least recover part of their loss. Insurance is thus, a business that exists for other businesses to thrive. Insurance serves as a means of savings in the sense that when a loss occurs, a person with an insurance policy has something to receive from a insurance company. It is means of security since there is assurance that on will not be worse off if unexpected insured even occurs.

“Insurance is what you buy when you don’t need it, but you will regret not buying it when you need it.”

Who then is an insurer?

An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability,  or damages incurred by another individual. For this benefit the customer pays the company a fee, called a Premium. An insurer is frequently an insurance company and is also known as an underwriter.

Who is a policyholder?

A policyholder is a person or an entity that has purchased/acquired an insurance policy and has the right to exercise all privileges under the contract of insurance, except where restricted by the rights of an assignee. A policyholder may or may not be the insured, or the sole or one of the beneficiaries of the policy. Also called policy owner.

Who is insurance broker?

An insurance broker is a specialist in insurance and risk management who acts on behalf of individuals or entities who want to buy insurance.

Brokers act on behalf of their clients and provide advice in their interests. Sometime an insurance broker will act as agent of an insurer, but where this occurs, the situation should be fully explained to you.

A broker will help you identify your individual business risks to help you decide what to insurer, and those risk you can manage in other ways.

An insurance broker may specialize in one specific type of insurance or industry, or they might deal with many different types.

Insurance brokers can give you technical advice that are useful if you need to make a claim.

Brokers are aware of the terms and conditions, benefits and exclusions and costs of a wide range of competing  insurance policies, so they can help you find the most appropriate cover for your own circumstances.

Brokers can help arrange and place the cover with the chosen insurer and can often provide advice on how to make the most of your insurance budget.

Who is an underwriter?

An underwriter is a professional that has the ability to understand, access and rate the risk appropriately. This ability is gained not only through theoretical studies but also as a result  of years of experience dealing with similar risks.

The underwriter’s job is to protect the Insurance Company from acquiring non-profitable business by assessing a risk and determine appropriate rate of premium to charge.

Who is an insurance agent?

An insurance Agent is a person authorized to act on behalf of an insurer for the purpose of arranging an agreement.

Why do insurance companies use agents?

Insurance companies use Agents to take insurance to the doorsteps of the insuring public. Agents make the transaction convenient for the customer by serving as a link. They assist the customer in explaining the terms and conditions of the contract between them and the insurance companies.

How do insurance companies deal with fraudulent agents?

When a Agent is fraudulent, Insurance Companies report them to the law enforcement agencies as well as to the National Insurance Commission(NAICOM) for investigation and possible cancellation of his/her license.

Customer obligation

To avoid fraudulent agents, customers could exercise care by avoiding cash transactions. Customers could pay for their insurances by cheque, through bank debit notes, or pay directly to the insurance company. Where cash transaction takes place, the official receipt of the insurer should be obtained from the agent.

It is difficult to assure that an agent is not fraudulent. However, it is advised that anyone dealing with/through an agent should ensure the status of such contracts are verified with the insurance company every non and then.

Non-operative agents

These are agents who licenses have been withdrawn by NAICOM because of their involvement in unwholesome practices.

What happens to policies managed by non-operative agents?

When an agent becomes non-operative, your insurance contract with an insurance company remains valid. You can deal directly with the Insurance Company or through another Agent.

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