Since there are many uncertainties in life, insurance provides financial support and reduce the burden of uncertainties in business and human life. It provides safety and security against the insured event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss.
Contracts generally may be oral or written or implied by the conducts of the parties in line with the customs or usage of a trade or profession. However, certain contracts are governed by statute and insurance contract fall under such category. Section 50 of the Insurance Act governs insurance contract in Nigeria. The provision provides that payment of an insurance premium is a condition precedent to the establishment of an insurance contract.
The natural consequence of this is that when an insurance premium is not paid, there cannot be an insurance contract. The provision further stipulates that "there shall be no cover in respect of an insurance risk unless the premium is paid in advance." This means that payment of insurance premium is not the only condition precedent to the establishment of an insurance contract; the premium must also be paid in advance.
Part payment of insurance premium cannot constitute a valid and enforceable insurance contract. The reason for this is that the Insurance Act does not contemplate part payment of insurance premium. What the Insurance Act states is that there must be payment of premium in full and the payment of such premium must be in advance.
The consequence of non-payment or part payment of insurance premium is that there is no valid insurance contract and same cannot be enforced by a Court of law. For there to be a valid and enforceable insurance contract, there must be – (a) payment of insurance premium which must be full (b) the payment of the insurance premium must be in advance (c) there cannot be part payment of insurance premium.
Consequently, once there is non-payment of insurance premium or part payment of insurance premium, in the eyes of the law, there is no insurance contract or at best, the said contract is an illegal contract incapable of being enforced in law. It is therefore advisable that in entering an insurance contract in Nigeria, the premium must be paid in full and in advance as at the time of entering into the insurance contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.