Over time, policyholders across the nation have chosen to turn their backs on term insurance plans, preferring instead, the endowment policies. This is quite understood as Nigerians prefer to embrace policies that have savings attached to them. This is despite the fact that term insurance also offers crucial component of financial planning in all developed economies.
Term insurance is the most basic life insurance policy where the only benefit is compensation to the nominee if the insured person dies. According to a random survey carried out by this writer, in Nigeria, the thought of not getting the money ‘invested’ back on maturity has been pushing buyers towards money back schemes and in the past few years, linked up insurance plans with a seemingly irresistible combination of investment, insurance and tax saving. Insurance agents and brokers too have actively been pushing along these link lines and these have been quite helpful in pushing up premium volumes. However, while the level of premium has gone up, the purchase of protection has not been commensurate with the growth in incomes.
A cross section of persons spoken to claimed that all this is set to change with insurers effecting cuts in premium rates on term insurance, particularly for high-value policies running into millions of naira. Term insurance rates face the likelihood of coming down primarily because of two reasons; competition and increased life expectancy. Insurance policies too, have become so complex that it is near impossible to compare products of two companies.
The only product that can really be compared is the term insurance policy. Decrease in mortality rates, have played its part. The survey found out that most individuals buy term insurance to cover any loss of revenue for their families if they die during their earning years. With the mortality rates for those below 60 years coming down, insurance companies have been able to sharply reduce term insurance premium.
There are other factors for rate reduction as well. These include deepening insurance penetration and the reduction in solvency margins prescribed as well as availability of better mortality data, which helps companies ascertain the risks better. Insurers have been able to reduce cost of high-value policies further because well-heeled urban Nigerians are seeing marked improvement in mortality rates. Consequently, insurance companies do not view offering them inexpensive term cover as a risky proposition. This, coupled with the increasing demand from this segment, has swollen the volumes, which in turn, have contributed to shrinking rates. Sustaining the premiums at these levels doesn’t seem likely to hit a roadblock in the future and in fact, there are signs that the market could see low-cost insurance scaling new highs in the coming days.
If indeed most people are living well beyond their earning years, does a term life insurance pass the utility test from the policy holders’ perspective? While every individual needs to carry out his/her own cost-benefit analysis before zeroing in on a suitable policy, overall, these protection covers are worth buying. Also, given the high level of indebtedness of today’s working class, either in the form of housing loans or vehicle loans, there is a risk that the family is left with a liability rather than an inheritance if the breadwinner dies. For such individuals, variants of term insurance cover, mortgage protection plans and credit shield would ensure that life insurance takes care of their outstanding loans.
Survey shows Nigerians prefer Endowerment over Term Insurance
