Life Insurance with Cash Value-One of the major things to do in order to secure the future of your loved ones when you die is to sign up for a life insurance coverage.
Life insurance coverage is one of the rewarding financial decisions to make in life. In this article, I will guide you on what Life Insurance with Cash Value is all about and why you need it.
What is Life insurance with cash value?
Life insurance is an agreement between you and insurance providers to pay your premium contributions to your loved ones when you die. So in the event of your demise, the insurance providers will pay your premium contributions to your beneficiaries.
Life Insurance with Cash Value is permanent life insurance because it provides coverage for the policyholder’s life. It has higher premiums than term life insurance due to the huge cash value.
Most of the cash value of life insurance policies require a fixed-level premium payment, of which a portion is given to the cost of the policy and the remaining deposited into a cash value account.
How does Life Insurance with Cash Value Work?
Life Insurance with Cash Value works in a way that, you contribute part of your income to an insurance company so that when you die, your children or whoever is your beneficiary will not suffer in your absence.
The cash value of life insurance earns some good rate of interest, with little or no taxes on the accumulated earnings.
So as the life insurance cash value increases, the insurance risk attached to the policy will decreases. This is because the accumulated cash value will grow pass some of the insurer’s liability.
As the bread winner of the house, who is into a business or working in an organization with with constant inflow of cash, the best gift to your loved ones is to get life insurance because you may not be around to provide for them for ever.
Let’s say you bought a life insurance policy worth =N=25,000 death benefit. And the policy has no outstanding loans and you do not intend to make any cash withdrawals. Lucky enough, the policy got an accumulated cash value of =N=5,000. When the policy holder die, the insurance company will pay the full death benefit of =N=20,000. While the accumulated cash value of =N=5,000 will go to the insurance company.
Life Insurance Term vs Whole
Term life insurance
This is considered to be the most affordable life insurance out there. When you register for term life insurance, the policy is usually purchased for a specific period of time, and if you die within the year stated on the policy agreement, the insurance company will pay the amount stated on the policy agreement to your children or your beneficiaries.
In term life insurance, policy agreement is usually between the space of 1 -30 years. Term life insurance coverage can be renewable, usually yearly renewable and it is the best choice for those who need insurance coverage for a specific period of time.
Usually within the period when your children or beneficiaries are still under age or young and when they are grown up or finished university.
Permanent life insurance
This type of policy mandates that you pay for your insurance coverage for as long as you live and the insurance company will compensate your children or your beneficiaries the value of your policy coverage when you die. permanent life insurance are of three major types, whole life insurance, Universal life insurance and Variable life insurance. Let’s talk briefly on each of them.
Whole life Insurance
This is the type of permanent life insurance in which the premium remains the same as long as the policy remain active. The premium does not change, the insurance company expects you to pay the same amount of money for as long as you live.
Sometimes you will even discover that the amount of money you have contributed through paying premium will be valued more than the risk in the policy. Sometimes the insurance company will even give you the option of borrowing money out of your accumulated premiums.
Universal life insurance.
Under universal insurance, you have the same kind of coverage as in whole life insurance but the universal permanent life insurance goes one step further.
You have the freedom to restructure your policy the way you like. You can even structure your policy in a way that it will cover your entire premium.
But the structure can only be possible when you have contributed enough premium in your cash value account that can cover more than your entire premium.
Variable life insurance
This is a type of permanent life insurance coverage in which you receive the same death protection like other permanent life insurance coverage but then you have control over how you invest your money.
You have the option to invest your money elsewhere, it can be be in the stock market or even in the money market industry.
One disadvantage here is that when your investment do not perform well, the value of your insurance coverage will drop.
Contract limitations under life insurance
There are some fees and charges associated to life insurance coverage in Nigeria. Here are some expenses related to the coverage. You may want to consider these expenses before you sign up for life insurance.
- Mortality and expense charges
- Account fees
- Underlying investment management fees
- Administrative fees and
- Charges for optional benefits.
Insurance companies will charge you the above stated fees before you can register. Also note that this fees are not included your premium charges. I can not specifically tell you the exact amount the above limitations will cost you.
This is because each insurance company has charge differently depending on the risk associated to the policy you want to buy.
Why you need Life insurance coverage
- To take care of any outstanding loan or debt such as home loan, car loan or even personal loan when you die.
- You will no longer worry much about your financial future and you can have peace of mind knowing that your tomorrow is secured.
- Funerals can be quite expensive in some part of Nigeria, your family doesn’t have to worry much over your funeral ceremony.
- Permanent life insurance policies can accumulate a cash value over a period of time. You can borrow from your accumulated premiums with no tax incurred if your other investments fall short. Indirectly, you can use the borrowed cash to fund your business or your retirement dream.
Life insurance is very important to everyone regardless of your class in the society. If you are considering borrowing money from your accumulated premiums, make sure you invest the borrowed money wisely because any withdrawals from your account reduces policy benefits and values.
Life Insurance Rates
The truth is that some of these insurance companies in Nigeria do not make their Rates and premiums public.
You can hardly find it on their websites. So if you need their services, you either go to their physical office or use the service of a broker to get the rate of the policy you want.
What is Life Insurance Rates?
Insurance Rate is calculated as (a unit cost of insurance policy, multiplied by an exposure) which will give you the premium of the policy. To make it more clear, Insurance Rate is the amount of money that will cover losses, expenses and profits to insurance companies on a single exposure.
For example, in Life Insurance, the rate may be expressed as N5 for every property worth N1000 you exposed.
Difference between Insurance Rate and Premium
One often get confused between insurance Rates and premium. Take note, these two terms are not the same.
The rate of an insurance policy is what determines it premium. Before insurance company will put a calculated Rate on a particular policy, they would have calculated their losses, their expenses and their profits.
While premium is a monthly or annual contributions made to an insurance company by a policyholder.
Insurance Rates of some Insurance companies in Nigeria.
- AXA Mansard Insurance
AXA Mansard Insurance pls offers people up to Hundred Thousand Naira (N100,000) on their Instant Life Insurance package at just N1,000 Premium per annum. This simply mean that if you pay N1,000 as your premium every year, you will be entitled to a hundred thousand naira (N100,000) worth of Life insurance coverage. If you are a low income earner, I think you should consider getting this plan.
- Cornerstone Life Insurance
Cornerstone Insurance offers life cover of up to N1 Million. Their single insurance premium payments ranges from one thousand naira (N1000) to ten thousand naira (N10,000) per annum
The Rate of life insurance coverage in Nigeria is usually not the same, it varies depending on the type of policy you signed up for and the risk attached to such policy. Each insurance company has a way of calculating its own rate.
Insurance Premium and How it works
Insurance premium is one word that often get people confused especially if you are new in Insurance business. So let’s discuss what Insurance premium is all about and how it works especially here in Nigeria to give you head up and as well boost your confidence to go out there and grab a policy of your choice.
Insurance premium is one word you cannot ignore when looking for an insurance coverage. We have gathered some tips that will help you understand more of what insurance premium is all about and how it works.
What Is an Insurance Premium?
An insurance premium is the price tag of insurance policy. It is the total amount you are expected to pay for a single policy coverage. For example if you want to buy health insurance coverage, there’s a price tag for that health insurance coverage.
If you want car insurance coverage, there’s also a price tag for the car insurance coverage, that price tag is what is known as “premium “ Premium can be paid yearly or quarterly or even monthly depending on the agreement you reached with your insurance company.
How Does Insurance Premiums Work in Nigeria?
In Nigeria, when you register for a policy coverage, the insurance company expects you to pay a premium relatively to the policy you registered for.
Depending on the contract agreement between you and your issuer. The premium (policy price) and the mode of payment should be stated clearly on the certificate that will be issued to you by the insurance company.
Sometimes the insurance company will expect you to pay the premium in installment. It can be monthly, quarterly or yearly which ever way, you choose as your mode of payment, it should be stated clearly on the agreement paper.
Most times, the insurance company would require you to pay your premium complete before coverage will start.
How Much Does an Insurance Premium Cost in Nigeria?
The cost of insurance premium in Nigeria depends on the policy of your choice and also the risk associated to the policy.
You might not have what it takes to understand the technicalities involved in comparing insurance premium of different companies to determine which one is best for for you.
Which is why insurance experts advise that you consult insurance professional who can go the extra mile to shop for premium of different insurance companies on your behalf.
This professionals are called “insurance Brokers “ one of their main duties is to source for insurance premium that can serve your needs at your level.
Other factors that also determines the price of insurance premium in Nigeria is your age and the area you live in. Research shows that the older you grow, the more likely your insurance coverage gets high.
And if you live in an area with high risk of erosion or other natural disasters, there’s possibility that insurance company will charge you more.
You might not have enough money but want get covered. How to get a cheap premium in Nigeria depend on how versatile your research skills are.
To save your self the energy of surfing the net or going from one insurance office to the other looking for the company with the cheapest premiums, it’s advisable you employ the services of an insurance broker to do the dirty job for you.
Brokers work with different insurance companies, they can help you get the best offer. You should as well be careful while getting a broker because most of them are agents to some insurance companies.
Top 5 Life Insurance Companies In Nigeria
As we promise to always provide you the best tips that will guide you to a better tomorrow, let’s look at the top 5 biggest players when it comes to life Insurance in Nigeria. These companies are financially strong and have long spanning histories when it comes to Insurance industry in Nigeria.
1. AIICO Insurance plc
AIICO Insurance plc established in 1963 is one of the leading providers of Life insurance in Nigeria. The company focus mainly on Life Insurance, Asset Management and Health Maintenance. AIICO Insurance are expect in Life insurance and annuity, General insurance and special risk. These guys are keen to providing life insurance and retirement service to Nigerians.
2. AXA Mansard Insurance
AXA Mansard Insurance is a member of AXA group of companies present in Europe, Asia, North, South and Central America and of course here in Africa.
While I was going through their profile, I discovered that AXA was incorporated as a private limited liability company here in Nigeria as far back as 1989. AXA is a registered composite company under NAICOM. Their main focus are Life and non-life insurance services to Nigerians.
3. Industrial and General Insurance
IGI are in the business of Life Insurance and General Insurance. There are also expert in pension and special risk. IGI officially commenced business in 1992.
Equipped with strong financial base, Insurance professionals and modern technology, the company became the preferred choice for individuals and institutions in Nigeria.
4. Leadway Life Insurance
For more than 5 decades, leadway has earned a reputation of excellent in handling claims for her policyholders.
Their main focus since 1970 has been to expand insurance services to all Nigerian. Their main focus are on personal insurance (Life Insurance) Business insurance, auto insurance and General Insurance.
5. Custodian and Allied Insurance
Custodian is one of the leading life insurance insurers in Nigeria. Their main focus are on General Insurance, Life Insurance, Trustees, pensions, property. and wealth Management
These are top 5 leading providers of life Insurance in Nigeria. Their services are not just limited to Life Insurance, they have many more policy options coupled with high customer satisfaction, making them a strong life insurance choice for Nigeria.
There are also other insurance companies in Nigeria that provides quality services. You can make more research to find out the one that is suitable for your needs.
Group life insurance
Group life insurance is a scheme organized by a company to its staff. The company encourages its staff to sign up for an insurance that is equivalent to two or at most three times their annual salary.
In Nigeria, when you have more than five (5) employees, it is required by the law to sign up for group life insurance scheme. The group is usually not less than five (5) persons, including employees from both public and private sectors.
Generally speaking, in group life insurance, one insurance certificate issued to the company by the insurance company can cover a group of people.
How does group life insurance works in Nigeria?
Group life insurance is often provided to workers as part of their benefits in Nigeria. In some cases, you will discover that group life insurance is cheaper compare to what a single person will pay to protect him or her self under the same policy agreement.
So my advice is that if you are lucky to be included in a group life insurance by your organization, don’t reject the offer especially when you are not financially buoyant enough to buy individual coverage.
In Nigeria, as an employee who is under group insurance coverage, your organization keeps the actual insurance policy agreement(certificate) known as the master contract.
Everyone who are under the group life insurance also receive certificate of coverage as proof of insurance and not the actual policy. In group life insurance, you are allowed to choose your beneficiary , which can be any member of your family or close relation.
The numbers of your beneficiaries depend on the agreement between your organization and the insurance company.
Term group life insurance
Due to the fact that not every staff of a company would like to remain in the company for ever, companies usually go for Term group life insurance.
Term insurance is the most common type of group life insurance scheme, because it allows the company to do a yearly renewal of the policy.
So as an employee who is under group life insurance scheme, your insurance coverage remains active until your employment is terminated or the specific term of coverage ends. And if the specific term of coverage ends, it is at the discretion of your organization to renew or not renew.
How ever, you may choose to convert your group life insurance to individual policy if you leave your employer. Many choose not to covert because the conversion premium tend to be much higher.
Group life insurance Requirements
Before you sign up for group life insurance policy in Nigeria, you should make the following document available.
- Letter appointment/ contract letter agreement
- Means of identification
- Certificate of registration or incorporation
- Also, Form CO2
- Form CO7
- Means of Identification of two directors of the company
- List of Staff to be registered, levels and qualifications
- Any other documents that may be required by the insurance company.
Pros and Cons of group life insurance
- Cheaper than individual life insurance
- Using the leverage of the policy cover, you can insure high-risk individual
- You are issued certificate of coverage which you can use to convert to individual insurance if you want to.
- Employees have no control over their coverage
- Insurance cover ends the day you leave the organization
Like I said earlier, if you have consistent inflow of cash and your family rely on you for survival, the best gift to them is Life Insurance Coverage. Or better still Life Insurance with Cash Value.
This is because you may not be there to keep providing for them forever. When you have finally decided to buy life insurance, you need to consider all your assets and properties as well.
It is very important to chose a well to do insurance company. So do a very thorough research on the list of the available insurance company you want to trust your wealth and your life to.
After you have purchased life insurance coverage, it is advisable you regularly review your insurance policies to ensure that the policy still meet your family or your beneficiaries’ living standard.
This is because they may be a a change in the family such as the birth of new child, sometime a case of compulsory retirement may come up unexpected, even divorce can come up as well.
These factors are reasons why you need to review your policy statues regularly to ensure that the policy still meet your family living standard.