INSURANCE CONTRACT IN NIGERIA – DEFINITION AND FORMATION

An insurance contract is a legally binding agreement between an insurance company and an individual or entity (known as the policyholder). The contract typically outlines the terms and conditions of the insurance coverage being provided, including the type of insurance being offered, the premiums to be paid, and the circumstances under which the policyholder will be eligible to receive benefits or compensation in the event of a covered loss.

Insurance contracts are designed to transfer risk from the policyholder to the insurance company, in exchange for the payment of a premium. The policyholder pays the premium, and in return, the insurance company agrees to provide financial protection against certain risks or losses specified in the contract. In the event of a covered loss, the insurance company will typically pay out a benefit or compensation to the policyholder, up to the limits of the coverage provided by the policy.

Here’s an example scenario of an insurance contract:

John purchases an auto insurance policy from XYZ Insurance Company. The policy outlines the coverage he will receive in exchange for the premiums he pays. The policy includes liability coverage, which will pay for damages John may cause to other people or their property in an accident, as well as collision coverage, which will pay for damages to John’s own vehicle in an accident.

A few months later, John is involved in an accident and his car is badly damaged. He contacts XYZ Insurance Company to file a claim. The insurance company sends an adjuster to assess the damage and determine the value of the claim. Based on the terms of the policy, the insurance company agrees to pay for the repairs to John’s car, minus his deductible.

John pays his deductible, and the insurance company pays the rest of the repair bill. The claim is settled in accordance with the terms of the insurance contract.

SEE ALSO: NIGERIAN LAWS ON CLIMATE CHANGE

FORMATION OF AN INSURANCE CONTRACT

The formation of an insurance contract typically involves the following steps:

1. Application: The individual or entity seeking insurance coverage submits an application to the insurer(the insurance company). The application includes information about the insured party, the thing/individual sought to be insured, the type of coverage sought, and other relevant details.
2. Underwriting: The insurer reviews the application and assesses the risk associated with providing coverage. The underwriting process may involve evaluating the insured party’s medical history, driving record, credit score, and other factors that could impact the likelihood of a claim being made.
3. Offer and acceptance: If the insurer decides to offer coverage, they will issue an insurance policy with the terms and conditions of coverage. The insured party must review the policy and accept the terms by paying the premium.
4. Consideration: In exchange for providing coverage, the insurer receives consideration in the form of a premium payment. This payment is typically made on a periodic basis, such as monthly or annually.
5. Legal requirements: In some cases, there may be legal requirements that must be met to form a valid insurance contract. For example, some types of insurance may require a written contract or a certain level of disclosure from the insured party.

Once all of these steps have been completed, the insurance contract is considered valid and binding. The insured party is entitled to the coverage outlined in the policy, and the insurer is obligated to provide that coverage in exchange for the premium payment.

It is important to pay attention to the points below regarding the establishment of the insurance agreement:

1. Insurance coverage: This refers to the specific protections and benefits provided by an insurance policy. It is the amount of protection that an insurance policy provides against certain risks or losses. Insurance coverage can vary depending on the type of policy and the specific terms outlined in the policy agreement. The coverage may include things like medical expenses, property damage, liability claims, loss of income, and more. The purpose of insurance coverage is to protect individuals or organisations from financial loss or liability in the event of an unexpected or unforeseen event covered by the policy.
2. Proposal Forms: This is the first document to be completed by a person who wishes to insure against a risk. The proposal form typically asks for information about the potential policyholder’s personal or business situation and the type and amount of insurance coverage they are seeking. This is to enable the insurer to assess the level of risk involved. When completed, the proposal form serves as an offer which the insurance has the option to accept or not.
3. Insurable Interest: This refers to a financial or other interest that a policyholder has in the item or person they are insuring. For example, a person has an insurable interest in their own life, a property they own, or a business they own. A man has no insurable interest in a stranger’s life or property subject to certain exceptions which shall be treated subsequently.
4. Premium: This is the amount of money that a policyholder pays to the insurance company in exchange for insurance coverage. Premiums can be paid on a monthly, quarterly, or yearly basis, depending on the terms of the insurance policy. Actual payment of the premium may not be compulsory in forming a binding agreement as a promise to pay may suffice.
5. Policy: This is a contract between an insurance company and a policyholder that outlines the terms of the insurance coverage, including what is covered, how much is covered, and the premium payments required. It is issued by the insurer upon his acceptance of the offer and serves as evidence of the insurance contract.
6. Risk: This refers to the likelihood that an insured event will occur and result in a loss that is covered by the insurance policy. Insurance companies assess risk when determining the terms and premium payments required for a particular policy.
7. Good Faith: This is a legal principle captured in the Latin term “Uberrimae Fidei” meaning “utmost good faith”. It requires all parties to an insurance contract to act honestly and in good faith when dealing with each other. For example, an insurance company must act in good faith when processing a claim, and a policyholder must provide accurate information when applying for insurance coverage.
8. Endorsements on the Policy: These are changes or additions to the original insurance policy that alter the terms of the coverage. Endorsements can be used to add or remove coverage, change the premium payments required, or modify other aspects of the policy.
9. Assignment: This refers to the transfer of ownership of an insurance policy from one party to another. For example, a policyholder might assign their life insurance policy to a beneficiary, who would receive the insurance payout in the event of the policyholder’s death.

SEE ALSO: THE ADMISSIBILITY OF COPIES AND EXCERPTS OF MINUTES OF THS MEETING OF A COMPANY UNDER NIGERIAN LAW