By Dr AbdelGadir Warsama Ghalib, Legal Counsel
04 March 2026
Generally, property owners must bear the risk of loss to their own property in which a person might be held liable for the risk of damage or loss to the property of another. Where persons who negligently or intentionally damage another’s property were held liable for the resulting losses. There are instances where buyers of goods could be liable for losses involving property they do not technically own. The purpose of insurance contracts, is to allow people to shift to another a risk of loss that they would ordinarily have to bear.
In essence, the insurance relationship is a contract that may involve more than two person. The insurer (usually a corporation), in exchange for the payment of consideration (called a premium), agrees to pay for losses caused by specific events (perils). The beneficiary is the person to whom the insurance proceeds are payable. The insured is the person whose life is covered by a life insurance policy or the person who acquires insurance on property in which he possesses an insurable interest. In most instances, the insured will also be the owner of the policy (the person who can exercise the contractual rights set out in the insurance contract),
A distinction is made between valid insurance contracts and wagering contracts. A wagering contract creates a new risk that did not previously exist and is illegal as contrary to public policy. Insurance contracts, on the other hand, transfer existing risks. There are four major types of insurance contracts: life insurance, fire insurance, liability insurance, and health insurance.
In life insurance contracts, the insurer is bound to pay a certain sum when a certain event (the death of the insured) occurs. Only the time that the event occurs is uncertain. The insurance contract is a valued policy; that is, the insurer is required to pay a fixed amount (referred to as the face value of the policy). The rate of the premiums to be paid depends on the face value of the policy. (The higher the face value, the higher will be the premiums that must pe paid.) There are two basic kinds of insurance; whole life and term life.
A policy for whole life insurance, also called ordinary or straight life insurance, normally binds the insurer to pay the face value of the policy on the death of the insured. The insured must pay the specified premium for the duration of his or her life. In addition to its risk-shifting character, a whole life insurance policy has an important savings feature. As premiums are paid on the policy; it develops a cash surrender value that the insured can recover if the policy is terminated. In the same way, a whole life policy develops a loan value. This increases with the age of the policy and enables the insured to borrow money from the insurer at low interest rates.
A term life insurance contract only obligates the insurer to pay the face amount of the policy if the insured dies within a specified period of time, the term of the policy. The insured is obligated to pay premiums for the term of the policy. Term contracts, unlike whole life contracts, do not build up any cash surrender value or loan value. Many term contracts have a guaranteed renewability feature that allows the insured to renew the policy for additional terms up to a stated age without proving insurability (good health). However, the premium rate for additional terms is likely to be higher than that for the original term. Many term contracts also contain a guaranteed convertibility feature that allows the insured to convert the policy to a whole life policy.
The opinions expressed are the author’s and do not necessarily reflect the views or have the endorsement of the Editorial Board of AfricaNewsAnalysis
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