What business insurance actually covers — and why founders should care
Core policy types explained
Business owners usually encounter five core policy types: property (building and contents), public liability, professional indemnity, employer’s liability, and business interruption. Each covers a specific risk. Property protects physical assets. Public liability covers third-party injury or damage. Professional indemnity covers mistakes in services. Employer’s liability covers staff injuries at work. Business interruption pays lost income when operations halt after an insured event.
Why these matters for small companies
Small businesses in Nigeria—responsible for roughly 96% of registered enterprises and almost half of GDP—operate with thin margins and limited savings. A single fire, customer injury, or cyber breach can wipe out months of revenue. Insurance converts unpredictable large losses into a predictable, affordable annual cost, protecting working capital and access to credit.
Common mistakes small companies make when buying insurance
1. Buying policies without reading definitions
Many owners sign forms that list broad cover names but hide exclusions in “definitions” and “exceptions.” For example, fire cover might exclude damage caused by poor maintenance or electrical faults. The business then discovers a denied claim when it matters most.
2. Underinsuring or overinsuring wrong items
Underinsuring means declaring an asset value lower than replacement cost to save on premium. A claim payout will be reduced proportionally. Overinsuring increases premium unnecessarily and can trigger suspicion at renewal. Both are avoidable with a simple valuation checklist.
3. Treating insurance as a tick-box for lenders only
Some firms buy the minimum cover lenders demand. That can leave gaps: no cover for stock in transit, no cyber protection, or inadequate employer’s liability. When a gap appears, the owner faces the full cost and reputational damage.
Step-by-step: How to choose the right insurance package
Step 1 — Map tangible and intangible risks
Create a one-page risk map. List assets (shop, equipment, inventory), staff, critical customers or suppliers, and digital assets (customer data, website). Rate each risk by likelihood and impact (low/medium/high). This quickly shows where cover is necessary and where it can be skipped.
Step 2 — Get three quotes and compare clauses
Obtain quotes from at least three insurers (for example, Leadway Allianz, AIICO, AXA Mansard). Don’t just compare premium. Compare:
- Sum insured and valuation method
- Policy exclusions and sub-limits
- Waiting periods and excess amounts
- Claims process details and required documents
A recommended tactic: ask each insurer to provide sample claim forms and a recent claims turnaround time for similar clients.
Step 3 — Use simple math to budget
Estimate replacement cost for major items. Example: a small Lagos retail shop with shelves and equipment may have NGN 800,000 replacement cost. At a typical property premium rate of 0.5–1.5% (estimate used for budgeting), the annual premium is NGN 4,000–12,000. Add business interruption and liability and expect a total annual range of NGN 25,000–150,000 depending on scale. These figures are estimates—use them to plan cashflow, not as sales prices.
How to structure policies to reduce cost and avoid surprises
Choose sensible excess and deductibles
Higher excess lowers premium. For example, choosing NGN 50,000 excess might cut premium by 10–20%. The owner must ensure liquidity to meet excess in a claim. This trade-off can save money without losing cover.
Bundle where it makes sense
Insurers often offer combined packages (property + business interruption + public liability). Bundles reduce duplication and can be 10–25% cheaper than standalone policies. Confirm the bundle’s exclusions—bundling won’t help if a key risk is left out.
Limit optional covers to real exposure
Skip add-ons that don’t match the risk map. For instance, if the business has no employees, employer’s liability is unnecessary. If the company holds customer payment cards, add basic cyber or data breach cover. Focus spend on the highest-impact gaps.
Claims, compliance and record-keeping — practical operational steps
Pre-claim checklist to speed payouts
- Notify the insurer within the timeline stated (often 24–72 hours).
- Preserve evidence: photos, receipts, police reports.
- Prepare a simple inventory with purchase dates and costs for lost/damaged items.
- Keep all communication in writing; confirm phone calls with email.
Documentation every small business should maintain
Keep a digital folder (cloud backup) with:
- Receipts and supplier invoices (last 2–3 years)
- Fixed-asset register with serial numbers
- Staff records and payroll details
- Contracts with key customers and suppliers
This reduces friction during claims and supports any arguments over valuations.
Regulatory and tax notes for Nigeria
Insurance providers in Nigeria are regulated by the National Insurance Commission (NAICOM). For proof of cover, lenders may request stamped policies and premium receipts. Premiums paid for business insurance are generally deductible expenses for corporate income tax, but the business should confirm with a tax adviser or the Federal Inland Revenue Service (FIRS) guidelines before filing.
Real-world examples and quick checklists
Case: Lagos electronics retailer
A retailer in Yaba insured stock (NGN 2,000,000), shop fittings (NGN 500,000), and public liability. A flood damaged stock after heavy rains. Because the owner kept an updated inventory and reported the claim within 48 hours, the insurer paid a 90% replacement after policy excess. The lesson: accurate records and fast notification matter more than small premium differences.
Checklist for the next 30 days
- Day 1–3: Create a one-page risk map and asset register.
- Day 4–10: Request three detailed quotes and ask for sample claim forms.
- Day 11–20: Review exclusions and set excess levels aligned with cash reserves.
- Day 21–30: Purchase chosen policy, store digital copies, and brief staff on claim steps.
Final practical rules that work
Rule 1 — Prioritise high-impact risks
Cover the risks that would stop operations for more than a month: fire, flood, major theft, or a critical supplier failure. Others can wait until cashflow allows.
Rule 2 — Keep paperwork simple and current
Updater the asset register quarterly. Small, consistent effort prevents large claim disputes.
Rule 3 — Review annually
Business and risks change. Review policies at renewal—don’t auto-renew without a one-page reassessment. A 10-minute review can save thousands of naira and prevent surprise claim denials.
Practical outcome: by mapping risks, comparing clauses (not just prices), and keeping records, a small company can gain real financial protection while controlling premiums. The steps above are simple to implement and tailored to realities in Nigeria—use them to protect working capital and preserve growth momentum.
