Premiums and the Risk Factor in Nigerian Insurance Law

A woman insures her Mercedes for ₦7.8 million. The premium is ₦520,000. She pays ₦220,000 on the day and promises the balance. Two months later, gunmen take the car outside her house. Two days after that, she pays the remaining ₦300,000 and makes her claim. An arbitrator awards her ₦6.3 million. The Court of Appeal sets the award aside: she was never covered.¹

That story, from Industrial and General Insurance Co Ltd v Adogu, sums up why premiums matter. The premium is the price of cover, and in Nigeria the law now says that no premium, no cover. This article explains what a premium is, how and to whom it must be paid, what happens on renewal and lapse, when it can be recovered, and how the idea of “risk” shapes what an insurer agrees to cover. It follows Formation of an Insurance Contract in Nigeria and uses the Nigerian Insurance Industry Reform Act 2025 (NIIRA) as the baseline.

1. What a premium is

A premium is the price paid for taking on the risk. It is the consideration that supports the insurer’s promise, and at common law it is usually paid regularly, in return for protection against the insured risk. Where no premium has been paid, the general rule is that the risk does not attach.

The label does not decide the matter. In University of Nigeria v Turner, the university’s payments under a sinking fund policy were called premiums, but the court looked at what was really happening and found an investment, not a payment for bearing a risk.² A genuine premium exists only where the other features of a contract of insurance are present. We covered that test in Nature and Legal Meaning of Insurance in Nigeria.

2. Is payment a condition of cover? The conflict and how the statute settled it

For years the cases pulled in two directions, and a good student should know both.

One line said payment was a condition of cover. In Fadayomi v Mercury Assurance Co, the insured’s failure to complete payment was fatal to her claim, because payment was a condition precedent to the insurer’s liability.³ In Ezeigbo v Lion of Africa Insurance Co, a claim for a Mercedes tanker wrecked in an accident failed because the owner had not paid the agreed premium in full.⁴ Chime v United Nigeria Insurance Co followed Ezeigbo: the insured was a Railway Corporation employee whose premium was deducted from his salary, but his employer never paid it over or told him, and when his car was damaged the insurer said the policy had been cancelled for non-payment. The court held that without payment there is no contract, and the risk had not been covered.⁵

The other line said the contract could exist before payment. In Jammal Transport Nigeria Ltd v African Insurance Co, Kazeem J said that as soon as the contract is agreed the insured becomes liable to pay, and if the premium is not paid the insurer remains liable unless the policy says otherwise or the non-payment amounts to a repudiation.⁶ Adie v Insurance Corporation supports that view.⁷

Parliament chose the first. Section 50(1) of the Insurance Act 2003 said the receipt of premium was a condition precedent to a valid contract and that there was no cover unless the premium was paid in advance. Section 60(1) of NIIRA repeats it word for word.⁸ The Supreme Court has held that the effect is that the agreed premium must be paid by the insured before there is cover.⁹ Adogu went further and held that the section does not contemplate payment by instalments, and that payment after the subject matter had been lost came too late. The Court of Appeal added that because the car had ceased to exist when the contract became effective, the contract was void and the insured had acted contrary to the principle of utmost good faith.¹⁰

Enforcement is by penalty. An insurer that grants cover without premium paid in advance faces a penalty of up to twice the premium.¹¹ And the rule has three important limits. It does not apply to compulsory third-party motor policies.¹² A premium paid to a broker is treated as paid to the insurer, and the broker must pass it on within 20 working days or 30 calendar days.¹³ And the Act says nothing about the cases in between, such as part-payment agreed in writing by the insurer, which is the situation Adogu decided against the insured. If you advise a client, tell them to pay in full before the risk period begins.

The cases do, however, leave one real tension. Chime shows that the person who pays through an employer, a bank standing order or a cooperative can lose everything if the money never reaches the insurer. Contrast Esewe v Asiemo, where a premium handed to the insurer’s own manager protected the insured even though the insurer said it never received it.¹⁴ Payment to the insurer’s authorised agent is payment to the insurer, as Onwuegbu v African Insurance Co also held, even if the agent misappropriates the money.¹⁵ But if the insured colludes with the agent, the insurer is not bound, as Bamidele v Nigeria General Insurance Co shows.¹⁶ Section 60(2) of NIIRA writes the agent rule into statute for brokers. Nothing in section 60 protects the employee in Chime, whose employer was not the insurer’s agent.

3. How and to whom the premium must be paid

Unless the policy says otherwise, the insured pays at the insurer’s principal place of business, usually in cash. The policy may name a particular agent, and the insured must then comply. Where the insurer authorises an agent to collect premium, or holds him out as having that power, payment to him is sufficient, as the cases above show.

Cheques raise their own issues. An insurer is not obliged to accept one, as Pape v Westacott held.¹⁷ But insurers often do accept cheques, expressly or by course of dealing, and then a cheque posted in time and received in the ordinary course of post counts. If the cheque is dishonoured, there is no payment of premium even if the insurer keeps the cheque, as Ajala v American Life Insurance Co and Fadayomi hold.¹⁸ The unanswered modern question is electronic payment. A bank transfer shown as “pending” on the insured’s phone but not yet received by the insurer is not covered by any Nigerian decision or by section 60. The sensible approach is to pay early, pay by traceable transfer and keep the receipt.

A premium can also be satisfied by set-off. In Nasidi v Mercury Assurance Co, a lorry owner entitled to a premium rebate had it retained against the renewal premium, and the court held that this was valid consideration for the cover note.¹⁹

4. Renewal, lapse and days of grace

Life and non-life insurance behave differently at renewal. In life insurance the insured generally has a right to renew, subject to reasonable conditions. In other classes there is no absolute right to renew: continuing the policy depends on the insured paying and the insurer accepting the renewal premium. In Ezeigbo, the insurer told the owner it would not continue after the cover note expired and would refund the unexpired premium, and since he knew the cover note had expired and the policy was cancelled, the insurer was not liable.²⁰

Time is of the essence in paying renewal premiums. Even a day’s delay can lapse the policy, which is why insurers allow days of grace. In non-life insurance, the days of grace do not by themselves protect the insured against loss unless the policy expressly says so, as in Simpson v Accidental Death Insurance Co.²¹ Where the policy fixes no hour, the risk lasts to the last moment of the last day, so in Isaacs v Royal Insurance Co a fire on the last day of the period was covered even though the renewal premium had not been demanded.²² In life insurance, protection during the grace period depends on the policy wording, and a clause allowing unpaid premium to be deducted from the proceeds protects the beneficiaries, as in Ajala.²³

The Supreme Court’s decision in Crusader (Nigeria) Insurance Co v Anunike tests this strictness. The insured lived in Onitsha and could not pay his premiums during the civil war. The trial judge thought it harsh and unconscionable to apply the lapse clause to him. The Supreme Court disagreed: the policy’s own terms governed, frustration by war was irrelevant, and his premiums were not recoverable.²⁴ It is a good example of how far Nigerian courts have been willing to enforce the written terms against a policyholder.

5. Return of premium

The common law principle, from Anderson v Fitzgerald, is that where the risk has not been run, the premium should be returned, because the insurer receives it for running a risk.²⁵ In practice the right is narrow.

Where the insurer avoids the policy for innocent non-disclosure, the insured can recover the premiums on the ground that the consideration has failed.²⁶ NIIRA states the same pattern for marine insurance: the premium is returnable where the consideration totally fails and there is no fraud or illegality, where the policy is void or avoided from the start (unless the risk is indivisible and has once attached), where the subject matter was never at risk, where there was no insurable interest throughout, and for over-insurance on an unvalued policy. It is not returnable where a defeasible interest ends during the risk.²⁷ Those sections sit in the marine part of the Act, but they describe the common law and are a useful guide for other policies.

Three situations defeat recovery. First, forfeiture clauses: in Turner and Crusader, the policy terms allowed the insurer to keep premiums.²⁸ Second, illegality. A policy made without insurable interest is a wager, and the premiums cannot be recovered, as Howard v Refuge Friendly Society held; even a mistake about the law does not help, as in Harse v Pearl Life Assurance Co.²⁹ Third, the insured who is induced by the insurer’s fraud is in a different position: in Kettlewell v Refuge Assurance Co a woman misled by an agent into believing she would receive a paid-up policy after five years recovered her premiums on rescission.³⁰

6. Control of premiums and commissions

NIIRA does not leave pricing entirely to the market. Section 62 caps commission paid to brokers and other intermediaries at 9 per cent for group life, 12.5 per cent for motor, 15 per cent for workmen’s compensation, 20 per cent for any other non-life class and 3 per cent for single premium annuities, with a penalty of up to five times the excess for anyone who pays or receives more.³¹ Section 63(3) prohibits premium loading in whatever form, although the Act does not define the term, so what counts as loading will be decided by regulation or in court.³² Insurers may grant no-claims discounts and similar incentives within the Commission’s rules.

7. The risk factor

Risk is an actuarial idea. The insurer measures the chance and size of loss across a large group, and prices the premium accordingly. As a general rule any risk may be insured, and the law separates two kinds.

Voluntary risks are those a person chooses to cover: his house, his shop, his life. Mandatory risks are those the law requires. NIIRA lists several: group life cover for employees (section 68), insurance of buildings under construction (section 75), public buildings (section 76), government assets and employees (section 77), petroleum and gas stations and products in transit (section 78), professional indemnity for health care providers (section 80), aviation (section 81), imported goods (section 82) and third-party motor insurance (section 84).³³ A compulsory insurance requirement restricts how owners may use their property rather than taking property away, so it is hard to see a challenge under section 44 of the Constitution succeeding.³⁴

Motor third-party insurance shows how the content of a mandatory risk can change. Under the old Act, the courts held in Tugbobo v Kuti that insuring against third-party risks was a statutory duty, and in Adeoye v West African Provincial Insurance Co that it meant death or bodily injury to third parties and not damage to their property.³⁵ That is no longer the law. Section 87 requires every third-party policy to cover death or bodily injury, medical expenses (up to ₦100,000 out-patient and ₦250,000 in-patient, or more if the Commission prescribes) and damage to third-party property up to ₦3 million. It must also cover damage to public property on the highways.³⁶ In addition, section 84(4) and (5) require operators of vehicles carrying fare-paying passengers to insure each passenger against death or bodily injury, with compensation of ₦2 million for death or total permanent disability. The danfo passenger therefore has a specific statutory entitlement, separate from ordinary third-party cover, provided the operator is actually insured, which is a large condition.

Even where a premium is paid and a policy exists, the insurer is not on risk if it was materially deceived about the risk, which is the subject of Non-Disclosure and Misrepresentation in Nigerian Insurance Contracts. In Akpata v African Alliance Insurance Co, a life assured who told the insurer he had no other cover when he did lost the benefit of the policy.³⁷ But the insurer must prove the deception: in Audu Bida v Motor and General Insurance Co, the insurer’s claim that the car was old, not new, failed for want of proof, and the insured recovered.³⁸

Exclusions work the same way. Where a burglary policy excludes loss during war or civil commotion, the insurer is not on risk if the loss arises that way, but it must prove it. In Mokwe v Royal Exchange Assurance Co, the insurers could not prove that the burglary occurred during the civil war and the insured recovered in full.³⁹

8. Common student mistakes

• Treating Jammal as the current law on unpaid premium. Section 60(1) of NIIRA, and its predecessor section 50, has displaced it.
• Saying instalments are fine. Adogu says the section does not contemplate instalment payment.
• Forgetting the exceptions: compulsory third-party policies and premium paid to a broker.
• Saying a premium paid to any agent is good payment. The agent must be authorised or held out as authorised.
• Assuming a dishonoured cheque is payment because the insurer kept it.
• Writing that third-party motor insurance covers only bodily injury. Section 87 now includes property damage and medical expenses.
• Citing section 50 of the Insurance Act 2003 as current law.

9. Problem question approach

Ask what premium was agreed and when it fell due. Was it paid in full, in advance, and to whom? If paid to a broker or the insurer’s agent, section 60(2) and the agency cases apply. If the loss came first, say whether cover had begun (section 60(1), Adogu). If the question concerns renewal, separate life from non-life and check the days of grace in the policy. For return of premium, ask whether the risk ever attached, whether there was fraud or illegality, and what the policy says about forfeiture. For risk, check whether it is voluntary or mandatory and whether any exclusion or misrepresentation defence is proved by the insurer.

10. Quick reference

Question	Answer	Authority
Is premium a condition of cover?	Yes, paid in advance	NIIRA s 60(1); Corporate Ideal v Ajaokuta Steel
Instalments?	Not contemplated	Industrial and General v Adogu
Exceptions to advance payment?	Compulsory third-party; premium to broker	NIIRA s 60(4), s 60(2)
Payment to insurer’s agent?	Good payment	Esewe v Asiemo; Onwuegbu v African Insurance
Dishonoured cheque?	No payment	Ajala v American Life; Fadayomi
Right to renew?	Life: yes, subject to terms. Non-life: no	Ezeigbo; Simpson
Last day of risk period?	Protected to the last moment	Isaacs v Royal Insurance
Return where risk never attached?	Yes	Anderson v Fitzgerald; NIIRA s 194
Return where wagering or illegality?	No	Howard v Refuge Friendly Society
Commission cap, non-life (other classes)?	20 per cent	NIIRA s 62(1)(d)
Third-party motor cover includes?	Death, injury, medical expenses, property damage	NIIRA s 87(1)

11. Key cases

• Industrial and General Insurance Co Ltd v Adogu (2010) 1 NWLR (Pt 1175) 337: no cover until premium is fully paid in advance; instalments not contemplated.
• Corporate Ideal Insurance Ltd v Ajaokuta Steel Co Ltd (2014) 7 NWLR (Pt 1405) 165: premium must be paid in advance for a valid contract.
• Charles Chime v United Nigeria Insurance Co (1972) 2 ENLR 808: no payment, no contract, even where the employer failed to remit.
• Jammal Transport Nigeria Ltd v African Insurance Co (1971) 2 NCLR 145: contract may exist before payment (displaced by statute).
• Esewe v Asiemo (1974) 4 UILR (Pt 3) 355: payment to the insurer’s manager binds the insurer.
• Crusader (Nigeria) Insurance Co v Anunike (1975) 1 All NLR (Pt 1) 96: lapse clause enforced despite the civil war.
• Anderson v Fitzgerald (1853) 4 HL Cas 484: premium returnable where the risk is never run.
• Howard v Refuge Friendly Society (1886) 54 LT 644: no return of premiums on a wagering policy.
• Tugbobo v Kuti (1970) NCLR 427 and Adeoye v West African Provincial Insurance Co (1970) NCLR 409: former limits on compulsory motor cover.

Footnotes

1. Industrial and General Insurance Co Ltd v Adogu (2010) 1 NWLR (Pt 1175) 337.
2. University of Nigeria v Turner (1968) ALR Comm 290.
3. Fadayomi v Mercury Assurance Co Ltd (1973) UILR (Pt IV) 424.
4. Ezeigbo v Lion of Africa Insurance Co Ltd (1968) 3 ALR (Comm) 88.
5. Charles Chime v United Nigeria Insurance Co (1972) 2 ENLR 808.
6. Jammal Transport Nigeria Ltd v African Insurance Co Ltd (1971) 2 NCLR 145, 162.
7. Adie & Sons v Insurance Corporation Ltd (1898) 14 TLR 544.
8. Nigerian Insurance Industry Reform Act 2025, s 60(1); Insurance Act, Cap I17, LFN 2004, s 50(1).
9. Corporate Ideal Insurance Ltd v Ajaokuta Steel Co Ltd (2014) 7 NWLR (Pt 1405) 165.
10. Industrial and General Insurance Co Ltd v Adogu (n 1).
11. Nigerian Insurance Industry Reform Act 2025, s 60(3).
12. Nigerian Insurance Industry Reform Act 2025, s 60(4).
13. Nigerian Insurance Industry Reform Act 2025, ss 60(2) and 61.
14. Esewe v Asiemo (1974) 4 UILR (Pt 3) 355.
15. Onwuegbu v African Insurance Co Ltd (1965) NMLR 248.
16. Bamidele v Nigeria General Insurance Co (1973) 3 UILR (Pt 4) 418.
17. Pape v Westacott [1894] 1 QB 272.
18. Ajala v American Life Insurance Co (1973) 3 UILR (Pt 2) 233.
19. Nasidi v Mercury Assurance Co Ltd (1971) 1 ALR (Comm) 387, 395.
20. Ezeigbo v Lion of Africa Insurance Co Ltd (n 4).
21. Simpson v Accidental Death Insurance Co (1857) 2 CB (NS) 255.
22. Isaacs v Royal Insurance Co (1870) LR 5 Ex 296.
23. Ajala v American Life Insurance Co (n 18).
24. Crusader (Nigeria) Insurance Co v Anunike (1975) 1 All NLR (Pt 1) 96.
25. Anderson v Fitzgerald (1853) 4 HL Cas 484.
26. Carter v Boehm (1766) 3 Burr 1905, 1909.
27. Nigerian Insurance Industry Reform Act 2025, ss 192 to 194.
28. Crusader (Nigeria) Insurance Co v Anunike (n 24); University of Nigeria v Turner (n 2).
29. Howard v Refuge Friendly Society (1886) 54 LT 644; Harse v Pearl Life Assurance Co [1904] 1 KB 558.
30. Kettlewell v Refuge Assurance Co [1908] 1 KB 545.
31. Nigerian Insurance Industry Reform Act 2025, ss 62 and 63(3).
32. Nigerian Insurance Industry Reform Act 2025, ss 62 and 63(3).
33. Nigerian Insurance Industry Reform Act 2025, ss 68, 75 to 78, 80 to 82 and 84.
34. Constitution of the Federal Republic of Nigeria 1999, s 44(1).
35. Tugbobo v Kuti (1970) NCLR 427; Adeoye v West African Provincial Insurance Co (1970) NCLR 409.
36. Nigerian Insurance Industry Reform Act 2025, ss 84(4) and (5), 87(1) and (2).
37. Akpata v African Alliance Insurance Co Ltd (1967) 3 ALR (Comm) 264.
38. Audu Bida v Motor and General Insurance Co (1972) NCLR 270.
39. Mokwe v Royal Exchange Assurance Co (1974) 4 ECSLR 280.