Insurance as Investment? Just ‘Shine’ Your Eyes
By Chuks Emele
It’s common in Nigeria to think of insurance as something you do to protect against unforeseen loss or damage. But it can also be an avenue for investments that yield decent returns.
Most insurance companies, beyond traditional insurance, do offer products purely targeting capital accumulation with decent returns on investments over the medium and the long term. Such investments can preserve the value of wealth as well as help stay ahead of inflation and depreciation. What’s more, it’s a veritable way to accumulate money to start a business, make a major purchase or do something close to your heart.
A constant, however, is that you’ll have to stay the course to get the benefits. You must also do your due diligence. The latter point is very important; you must “shine your eyes,” as we say in street parlance.
Take the example of Yomi Jacobs, a Lagos-based advertising professional, who took up one of the education products offered by AIICO Insurance some years ago. The policy required him to pay a premium of about 500,000 naira every quarter and was for a minimum of six years.
Jacobs paid his premiums diligently for five years before he decided he could no longer afford them. He triggered the “surrender clause,” which an investor would qualify for after about two years of running the policy. He got back all of his premium contributions in addition to an extra 25 percent of the value as interest and dividend earned over the period. He was pleased.
Impressed by the outcome, Jacobs easily fell for another investment product called Cash Flow, offered by FBN Insurance. This particular product offered a minimum tenure of six years and promised to pay 25 percent of the investment value after four years, another 25 percent a year later, and the full sum plus interest at the end of the sixth year.
You’re thinking you’d make 50 percent over the life of the policy right? So thought Jacobs too.
At the end of the first four years, he was duly paid 25 percent of the insured amount. Jacobs also stopped contributing his quarterly premium. Having already paid well over the insured sum, he didn’t see any point in making more premium payments. Otherwise he couldn’t see where his profit was going to come from.
His shock came when it was time to collect the next payout a year later. Jacobs was told he wasn’t qualified since he stopped paying his premium. That he was expected to pay the quarterly premium for the entire duration of the policy.
In other words, FBN Insurance is simply giving you back the money you contributed without any returns after six years. And this is somehow packaged to look as if they’ll pay you 50 percent of your investment over six years.
Whether the regulators know about this seeming deception or not remains a mute question. Which makes it even more imperative that individual investors are vigilant and asking searching questions before falling for such schemes.
The following are some investment products offered by some insurance companies in Nigeria:
Education Legacy Assurance
This policy enables saving toward financing children’s education. The policy holder will receive the accumulated funds at the end of the tenor or go for the stated purpose if the person is deceased.
This plan aims at meeting both short- and long-term financial objectives in addition to providing insurance protection.
This product encourages subscribers to save toward specific targets or projects, such as the purchase of a house, a car or any designated objective.
Money Market Funds
Axa Mansard’s Money Market Fund collects money from investors that are used to buy treasury bills, bonds and commercial papers or placed in term deposits in financial institutions. The profits are shared to the subscribers.
Equity Income Fund
Funds from investors who subscribe to the Equity Income Fund are invested in stocks and securities offered by the stock exchange. It’s designed for those with a high risk disposition.
The Customized Portfolio is made up of a variety of assets tailored to one’s risk preference. They could be made up of stocks, bonds, money market instruments, commercial papers, bank deposits and real estate in any combination of one’s choice and in accordance with risk appetite.
African Alliance Insurance
African Alliance Investment Plus This plan provides interest payment on savings with a life insurance cover.
African Alliance Money Appreciation Plan This is another hybrid of a savings plan and an insurance policy. There’s a 30 percent payout at every third of the tenure.
The African Alliance Smart Kid Educational Plan This is a savings plan and a life insurance policy that aims to provide parents with the funds required for their children’s future education.
The African Alliance Esusu Plan This plan seeks to leverage on the traditional savings or esusu system, whereby subscribers made periodic contributions to pool funds for members to take in turns. In this case, the contribution is made to African Alliance for one year. The contributor can cash our interest and capital or may choose to roll over and continue their contributions.
iSave Plan Cornerstone’s iSave aims to help policyholders to build up capital or savings over a 24-month period by offering interest rates 4 percent higher than banks are paying for deposits.
Maximum Investment Plan The maximum plan seeks to help customers build up funds by offering a guaranteed benefit at the end of plan.
Universal Plan The Universal Plan is a short-term product that has a maximum duration of 24 months with a guaranteed interest rate tied to the Central Bank’s Monetary Policy Rate.
Leadway Savings Plan This plan is designed to protect your capital and help provide the policy owner a lump sum of money.
The Leadway Smart Cash Plan The Smart Cash Plan is of a one year duration designed for people who need to meet short-term objectives. Funds are paid back on the due date into the bank account provided at the start.
The Leadway Investment Plan The Investment Plan bundles the offer of attractive interest rates with a life insurance cover. The main aim is to help customers build up capital over a given period.
This list is not exhaustive and provides only a sample of the investment opportunities available in the insurance sector. Speak to your own insurer about what they have on offer. As you can see for yourself by now, most insurance companies do offer one form of investment product or the other. Ask your insurer what’s available for you.