Understanding Different Types of Insurance Policies

In the trajectory of life, no one prays for any misfortune such as accidents, illness, or disaster, but life has a way of disrupting that wish.  And that’s where insurance policies come in. To serve as a financial cushion during unexpected situations. Whether you’re an entrepreneur, a parent, or a driver, insurance plays a vital role in curbing risks, especially when life surprises us.

But with so many types of insurance available, it may be hard to know which one is suitable for you.
In this blog post, we’ll look at the meaning of insurance and walk you through the major types of insurance policies in Nigeria and beyond.

What is Insurance?

By definition, insurance refers to a legal agreement between you (the insured) and a company (the insurer), where you pay a certain amount of money regularly, known as a premium, in exchange for financial protection when certain risks occur.

These risks could be car accidents, health issues, property damage, fire, theft, etc. Should any of these happen (depending on the types of insurance policy), the insurer pays you or a third party an agreed amount, helping you mitigate the financial burden.

An interesting fact about an insurance policy is that you may not use it every day, but it gives you peace of mind knowing it’s there when the need arises.

Why is Insurance Important?

Before we get to the types of insurance policies, let’s take a quick look at the importance of it:

1.It protects your assets like your home, car, or business.

2. It saves you from unexpected financial burdens and setbacks.

3. Insurance provides a form of legal and financial responsibility, especially in business.

4. Your family gets to survive financially if something happens to you.

Types of Insurance Policies

1. Life Insurance

This is one of the most common types of insurance. It is a type of insurance that provides financial support to your family or dependents when you pass away.

There are 2 common types:

• Term Life Insurance: It only covers you for a fixed period of time, say, 10 or 20 years. If you pass away within that period, your family receives a payout.
• Whole Life Insurance: This type of life insurance offers coverage for your entire life and may also include a savings or investment component. 

2. Health Insurance

Health insurance covers medical expenses when you fall ill, need surgery, or require hospitalisation. Instead of paying out of your pocket, your insurer covers a large part of your bills, depending on your policy.

There are individual, family, and group health plans, and some may cover prescription drugs, tests, maternity, and chronic illnesses. In Nigeria, many employees are covered under the National Health Insurance Scheme (NHIS), but private options are also available for more robust care.

3. Auto (Motor) Insurance

If you drive, motor insurance is not optional. It’s a legal requirement in Nigeria and many countries. This policy protects you from financial loss if your vehicle is involved in an accident, stolen, or causes damage to another person’s property.

There are three main types:

• Third-Party Insurance: This type of policy covers everyone except you. If you cause an accident, anyone who suffers damages as a result is known as a ‘third party.’ These people can claim from your insurance for their damages.
• Third-Party, Fire & Theft: If you are hit by another driver and you are not the party at fault, your insurance will not be claimed against. Instead, the other person’s insurance will be claimed. 
• Comprehensive Insurance: It covers damage to both your car and others’, including theft, fire, accidents, and more. If you have an accident, your insurance company will pay for absolutely everything.

4. Property (Home) Insurance

This type of insurance protects your home or building and sometimes the contents inside, against risks like fire, theft, flood, or vandalism. This has several variations to it:

• Building Insurance: This covers the structure of the home.
• Contents Insurance: Things that can be carried out of your property come under contents insurance. This may include things like curtains, furniture, and gadgets. 
• Landlord Insurance: Tailored for property owners who rent out buildings or apartments.

5. Travel Insurance

Are you planning a trip abroad or locally? Travel insurance protects you against unexpected events that may occur while you’re travelling. This could include: Medical emergencies, lost luggage, trip cancellations or delays, or personal accidents.

6. Business/Commercial Insurance

Running a business comes with a wide range of risks. Business insurance helps protect your company from unexpected events such as lawsuits, property damage, theft, or employee injury.
Some common types include:
• General Liability Insurance: It covers injury or property damage caused by your business activities.
• Professional Indemnity Insurance: For professionals like lawyers, doctors, or consultants to protect against claims of negligence or errors in service.
• Fire and Special Perils Insurance: Protects business property from fire and other related risks.

7. Education Insurance

Education insurance is a form of life insurance that helps parents plan for their children’s future school fees. If the parent (the policyholder) dies or becomes permanently disabled before the policy matures, the child still receives the promised amount to fund their education. This is a popular and thoughtful way to invest in a child’s future while preparing for the unknown.

Conclusion

Insurance may seem like an extra expense, but in reality, it’s a form of protection and preparation. Whether it’s your life, health, car, home, or business, having the right insurance policy can make the difference between recovery and ruin during hard times.