CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Life is full of risks and uncertainties, and since we are social human beings we have certain

responsibilities to minimize these risks. Nigerians can be viewed to be emotional and rational in

their buying decisions. They believe in future rather than the presents and desire to have a better

and secured future. In this direction, life insurance services have its own value in terms of

services such as savings, investment and risk protection. (Epetimehin, 2011).

In recent decades, demand for life insurance is characterized by continuous growth. For this

reason, there are numerous theoretical and empirical research tending to prove that different

decisions criteria’s influence life insurance demand.

Many people understand that insurance is essential to a well-functioning economy (Pritchett,

2006). Insurance absorption is typically low in third-world nations compared to developed

nations, owing largely to consumer attitude. Linda (2011) attributes the low perception of life

insurance in developing nations such as Nigeria to two factors: culture and religion which

constitutes demographic factors, however in this study, a wider aspect of other factors will be

emphasized.

Insurance is one of the key tools in modern life which has a great role in reducing risks and

providing financial and mental security, and finally it can broaden a countries economic

development (Derakhshideh & Jaleel 2014). It also enables the parties involved to protect their

assets and livelihood. People, as a group or individually, use assurance in cases of injuries,

damages, and untimely deaths of the principal earner.

The function of insurance in its various form is to protect against the heavy financial impact or to

anticipate misfortunes by spreading of loss among many who are exposed to risk of similar

nature. While it is not possible to predict which individuals among the many participants are

likely to be the victim of misfortunes it is often possible to forecast the quantum of loss which

the group may suffer. (Epetimehin, 2011).

A very straight forward definition of life insurance of which I will build this research upon is that

life insurance is a contract between two parties: the assured and the life insurance company or in

some cases life office, where by the life insurance company undertake to pay the a lumpsum to a

specified beneficiary issued by the insured in the event of his or her death for payment of a

consideration known as premium. This life insurance policy can be purchased to provide

payment for a specified time (term assurance) or throughout the lifetime of the assured (whole

life assurance)

Life insurance is a financial arrangement that works as an instrument of sustenance, recognizing

the value of human life in its individual and social dimension. It is a provider for social security

and economic subsistence in adverse situations. Moreover, it works as an income protection

measure for the family in case of breadwinner’s demise. Life insurance operates on the basis

principle of sharing and pooling of risk among a larger number of people in a group, life

insurance also transacts annuity businesses. The distinguishing feature of life insurances is that it

provides assurance against the possibility of death, often on guaranteed terms.

Life insurance can also be viewed as a concept of compensation or indemnity for any damage in

life or the part of life. Since the real compensation of life is impossible, the most needed thing

which can be considered as money is assumed as the most effective source of compensation.
Risk is the basis of insurance. Generally, risk has to do with uncertainty of losing, or not gaining

something of value. Insurance emphasizes the variable result of financial losses.

Insurance may be an economic system for reducing risk through transfer and pooling of losses; a

legal method of transferring risk in a contract of indemnity. Life insurance in its simplest form

protects against the loss of earning power causal by death of the insured. The permanent loss of

current earning capacity amounts to an “economic death”. From an economic standpoint, death

may be actual, living, or even retirement. The actual death classification represents the so - called

casket death. Permanent disability is “living death”, while living beyond the period of earning

capacity represents “retirement death” (David, 1983:21).

Understanding the decision criteria involved in purchasing life insurance policies will help to

unravel what individuals consider when selecting life insurance policies, contributing valuable

insights to the insurance industry and aiding consumers in making informed decisions, among

many others. It is of paramount importance for several reasons such as:

 Identifying the factors influencing life insurance decisions, consumers can therefore

make informed choices that align with their unique needs and preferences.

 Insurers can tailor their products and marketing strategies to better meet the expectation

of customers, leading to increased customer satisfaction and loyalty.

 Lastly, insights gained from this Research will enable insurance providers to stay

competitive by offering policies that resonate with evolving needs and priorities of the

target market.
Research on the market penetration of firms has been a key focus of organizational studies since

the 1960s, despite the increasing importance that life insurance has in mobilizing savings,

covering for life risks and providing term finance, it is not yet understood well what really drives

the demand and supply of it in Nigeria.

Yaari (1965) and Hakansson (1969) were the first to develop a theoretical framework to explain

the demand for life insurance. In this framework the demand for life insurance is attributed to a

person desire to bequeath funds to dependents and provide income for retirement. The consumer

maximises lifetime utility subject to a vector of interest and a vector of prices, including

insurance premiums rates. This framework posits that the demand for life insurance is a function

of wealth expected income over a person’s lifetime, interest rates, the cost of life insurance

policies and the assumed subjective discount rate for current future consumption.

Life insurance provides individuals and the economy with several financial services. Life

insurance product encourages long term savings and the investment of substantial sums in public

and private sector projects. By averaging their role as financial intermediaries, life insurance has

become a key source of long-term finance encouraging the development of capital markets

(Catalan et al, 2000; impavido and musalem, 2000)

1.2 Statement of Problem

With the liberalization of the Nigerian economy, functioning of the insurance sector allowed

private and foreign insurance companies to increase their cooperation with international

insurance standards. The recapitalization of the industry has also led to increase in competition
among the operators. They tried to lure customers by good service and flexible products. Thus,

insurance marketing is an aggregate function directed at providing service to satisfy customers

financial needs and wants more effectively and efficiently than the competitors keeping in view

the original objective of insurance (Shanker, 2002). To create and keep a customer means doing

lot of things for him so that he would like to continue the business. A company cannot stay in

business if it does not attract and hold enough customers: no matter how efficiently it operates

(Levitt, 1974). Thus, satisfaction of the customer need is prerequisite for existence and survival

of insurance companies.

Although life insurance is a vital component of financial planning, there is a dearth of thorough

research on the deciding criteria individual considers when they purchase life insurance policies.

This knowledge vacuum presents problems for both consumers and insurers, impeding the

creation of more customer-focused products and services. With so many life insurance products

available, one can only wonder why many Nigerians do not own a life insurance policy. This has

led to research into the factors that influence the purchase of life insurance policies, the types of

life assurance cover appropriate for various situations, groups, or individuals, and the various

attitudes and behaviours of consumers toward the purchase of life assurance. Nigeria is a country

where the average selling or purchase of life assurance policies is still lower than many western

countries.

The insurance industry has always been somewhat of a mystery to many consumers. New

product designs can sometimes be confusing to insurance consumers. The problem is further

compounded by a lack of understanding of some of the policies by insurance agents themselves.

How can consumers be sure they are buying the right amount of coverage at an inexpensive

price? Furthermore, can consumers intelligently evaluate the agents’ answers, terms and
conditions? Many experts believe that most consumers cannot evaluate insurance needs and

policies because of lack of knowledge on insurance matters (Tobias, 1983). Today, the

insurance buying consumer is faced with a myriad of policies with different names, examples

include universal life, whole life, term, endowment, Annuity. One of the biggest problem

consumers have with buying insurance is failure to understand the various policies (Tobias,

1983). The saying, “insurance is not often bought, it is sold” is more than a saying, it's often a

fact. Marketing complexity has become the adjective of Nigerian life insurance companies.

People, who are insurance clients, are urban and majority of them are buying policies because of

tough motivation and persuasion by agents, there seems to be vague relationship between the

functions and marketing approach deployed. What do marketers want to communicate? Are

consumers really recognizing the companies’ intentions? Life insurance companies are

producing large number of agents, which is an effort to make more and more clients. And agents

are trying to motivate and even persuade many times more by use of different kind of

psychological pressure. Are their efforts really enhancing consumer decisions? How can

consumers develop their engagement in the decision process?

Many factors are geared towards this research. Specially, consumer unwillingness to purchase

the product; companies’ vague marketing activities; the distance between companies and clients;

less frequency of repeat purchase despite increases in consumers’ income.

In conclusion, since insurance companies are not different from other industrial organizations

with respect to selling of their products, i.e. insurance policies, product differentiation can make

an impact. This research is therefore undertaken with an intention to identify and explore the

different criteria’s which propel the customers decision in selecting life insurance products

offered through various life insurance companies.

1.3 Objectives of Study

This study will assist in identifying the critical elements that influence the purchase of life

insurance, given the challenges posed by Nigeria's low life assurance product sales. The

objectives of the study are as follows:

1. To Determine the criteria’s that individuals consider when deciding to purchase a life

insurance policy and rank these criteria based on perceived importance.

2. To analyse and assessing the level of awareness and understanding of different life insurance

products available in the Nigerian market and their influence on purchasing decisions.

3. To provide actionable recommendations for insurers to enhance their marketing strategies

based on the preferences and needs of the Nigerian market.

4. To explore the impact of cultural values, societal expectations, and familial considerations on

the deciding criteria for life insurance patronage among Nigerians.

5. To examine the role and effect of trust in insurance providers and how it influences the

decision-making process, considering factors such as reputation, transparency, and historical

performance.

6. To Investigate how demographic variables, including age, income, and family structure,

impact the deciding criteria for life insurance purchases, identifying variations across different

demographic groups.

7. To Understand the Role of Financial Literacy, Investigating the level of financial literacy

among potential life insurance buyers in Nigeria and analyse how it affects their decision-making

regarding life insurance products.

1.4 Research Questions

1. What are the deciding criteria considered by individuals in Nigeria when purchasing a

life insurance policy, and how do they prioritize these criteria?

2. What role do cultural values, societal expectations, and familial considerations play in

shaping the decision-making criteria for life insurance purchases among individuals in

Nigeria?

3. How does trust in insurance providers, including their reputation, credibility, and past

experiences, influence the decision-making process for purchasing life insurance among

individuals in Nigeria?

4. What is the level of awareness and understanding of life insurance products among

individuals in Nigeria, and how does it impact their decision-making regarding life

insurance purchases?

5. What are the recommendations for insurers to enhance their marketing strategies based

on the preferences and needs of individuals in Nigeria regarding life insurance purchases?

6. What is the level of financial literacy among individuals in Nigeria, and how does it

affect their decision-making regarding life insurance purchases?

1.5 Hypothesis

Hypothesis 1 (Economic Conditions):

Null Hypothesis (H₀): Economic conditions, including affordability, job security, and inflation,

do not significantly influence the decision-making process for purchasing life insurance among

individuals in Nigeria.
Alternative Hypothesis (H₁): Economic conditions, including affordability, job security, and

inflation, significantly influence the decision-making process for purchasing life insurance

among individuals in Nigeria.

Hypothesis 2 (Cultural Influences):

Null Hypothesis (H₀): Cultural beliefs and traditions have no significant impact on the decision-

making criteria for life insurance purchases among individuals in Nigeria.

Alternative Hypothesis (H₁): Cultural beliefs and traditions significantly influence the decision-

making criteria for life insurance purchases among individuals in Nigeria.

Hypothesis 3 (Trust in Insurance Providers):

Null Hypothesis (H₀): Trust in insurance providers, including reputation and credibility, does not

significantly affect the decision-making process for purchasing life insurance among individuals

in Nigeria.

Alternative Hypothesis (H₁): Trust in insurance providers, including reputation and credibility,

significantly affects the decision-making process for purchasing life insurance among individuals

in Nigeria.

Hypothesis 4 (Regulatory Awareness):

Null Hypothesis (H₀): Awareness of regulatory bodies overseeing the insurance industry in

Nigeria does not significantly influence the decision-making process for purchasing life

insurance among individuals in Nigeria

Alternative Hypothesis (H₁): Awareness of regulatory bodies overseeing the insurance industry

in Nigeria significantly influences the decision-making process for purchasing life insurance

among individuals in Nigeria

Hypothesis 5 (Financial Literacy):

Null Hypothesis (H₀): Level of financial literacy among individuals in Nigeria has no significant

impact on their decision-making regarding life insurance purchases.

Alternative Hypothesis (H₁): Level of financial literacy among individuals in Nigeria

significantly impacts their decision-making regarding life insurance purchase.

1.6 Scope of Study

This study is important for giving consumers the information they need to make educated

decisions about life insurance. By knowing what influences these decisions, people will be able

to match their insurance needs with products that best fit their preferences and situations. This

research will also consider life insurance industries and give important information about

consumer behavior, this information will help insurers modify their products and marketing

strategies to better meet the specific needs of the Nigerian market. In turn, this will increase the

industry's competitiveness and sustainability.

The primary focus of the study will be to understand the deciding criteria and factors influencing

the purchase of life insurance policies among postgraduate students in University of Lagos,

Lagos State, Nigeria. The study will focus specifically on University of Lagos postgraduate

students capturing diverse demographic backgrounds, including age, gender, educational level,

and income.
The study will examine various variables, including economic conditions, cultural influences,

trust in insurance providers, awareness and understanding of life insurance products,

demographic variations, regulatory awareness, financial literacy, and the impact of political

factors.

The study will aim to achieve a representative sample size of postgraduate students in University

of Lagos, Lagos State, Nigeria. The study will be conducted over a specified period, spread

across months depending on the research timeline and resources available. The study may be

limited by factors such as sample size constraints, respondent bias, time constraints, and resource

limitations. The study will focus solely on postgraduate students in Nigeria and may not

generalize to other demographic groups or geographical locations. The study will adhere to

ethical principles, ensuring informed consent, confidentiality, and respect for participants' rights

throughout the research process.

1.7 Limitation of Study

1. Self-Reported Data: This study relies on self-reported data obtained through surveys and

interviews, which may be subject to respondent bias, memory recall errors, or social

desirability bias, leading to inaccuracies in the data collected.

2. Cross-Sectional Design: This study adopts a cross-sectional design, capturing data at a

single point in time. This limits the ability to establish causal relationships between

variables and may not capture changes in attitudes and behaviours over time.

3. Contextual Factors: The study may not fully capture the influence of broader contextual

factors, such as cultural norms, societal changes, and economic trends, which may also

shape the decision-making process for purchasing life insurance.

4. Response Rate and Non-Response Bias: The study's response rate may be affected by

factors such as survey fatigue, lack of interest, or non-response bias, leading to

incomplete data and potential biases in the analysis.

5. Resource Constraints: The study may be limited by constraints in time, budget, and

resources, impacting the scope of data collection, sample size, and analytical methods

employed.

1.8 Significance of the Study

Upon completion of this study, the factors that influence and work against purchasing life

insurance will be identified. This study will also aid in understanding how certain criteria’s

influence consumers' purchasing decisions and attitudes about the acquisition of life insurance

coverage. This study is also important for giving consumers the information they need to make

educated decisions about life insurance policies. By knowing what influence these decisions, the

people will be able to match their insurance needs with products that best fits their preferences

and situations. this research will also consider life insurance industries and give important

information about consumer behaviour, this information will help insurers modify their products

and marketing strategies to better meet the needs of the Nigerian market, which will in turn

increase the industry competitiveness and sustainability.

This research study on the deciding criteria for life insurance patronage among postgraduate

students in university of Lagos, Nigeria holds significant implications across various domains,

including academia, the insurance industry, policymaking, and societal welfare. Here’s an

extensive overview of the significance of this study:

1. Academic Significance:
Contribution to Literature: The study contributes to the existing literature on consumer behavior

and insurance decision-making by providing insights specifically focused on postgraduate

students in Nigeria, filling a gap in the literature.

Theoretical Advancements: Findings from the study may contribute to the development and

refinement of theoretical frameworks related to decision-making processes, economic behavior,

cultural influences, and trust formation in the insurance context.

Methodological Innovation: The study's mixed-methods approach, combining quantitative

surveys and qualitative interviews, may offer methodological insights and best practices for

future research in similar contexts.

2. Industry Significance:

Insights for Insurers: Insights from the study can inform insurance providers about the

preferences, needs, and decision-making criteria of postgraduate students, enabling them to tailor

their products, marketing strategies, and customer service to better meet the demands of this

demographic.

Product Development: Understanding the deciding criteria for life insurance purchases among

postgraduate students may guide insurers in developing innovative and customized insurance

products that resonate with the preferences and financial goals of this demographic.

Market Expansion: Insights from the study may facilitate market expansion efforts by identifying

untapped segments, addressing barriers to entry, and enhancing access to life insurance products

among postgraduate students in Nigeria.

[Link] Implications:
Policy Formulation: Policymakers can use insights from the study to formulate evidence-based

policies aimed at promoting financial literacy, consumer protection, and regulatory reforms to

enhance the accessibility and affordability of life insurance for postgraduate students.

Incentives and Regulations: Policy interventions such as tax incentives, regulatory reforms, and

public awareness campaigns may be informed by the study's findings to encourage uptake of life

insurance among postgraduate students and promote financial resilience.

[Link] Welfare:

Financial Inclusion: Improving access to life insurance among postgraduate students contributes

to broader goals of financial inclusion, ensuring that individuals from diverse socioeconomic

backgrounds have access to essential financial services and risk management tools.

Long-Term Financial Security: Encouraging the adoption of life insurance among postgraduate

students fosters a culture of long-term financial planning and protection, enhancing individual

and familial financial resilience against unforeseen events and emergencies.

Social Welfare: Increased uptake of life insurance can contribute to social welfare by reducing

the burden on public healthcare systems, providing financial support to families in times of need,

and fostering economic stability at the individual and societal levels.

This proposed study targeting post graduate students holds extensive significance by generating

valuable insights that can inform academic research, industry practices, policy formulation, and

societal welfare efforts aimed at promoting financial security and resilience among individuals in

Nigeria.

1.9 Definition of Terms

Here are definitions of certain terms related to Life Insurance Policies and those Relevant to the

Research on Deciding criteria for life insurance Patronage:

1. Agent: The insurance companies’ salesman who may represent one or more companies.

He takes your application but does usually approve it. This term is used in this paper to

represent persons engaged in the sale of insurance.

2. Beneficiary: Person or persons designated to receive the proceeds of the policy in the

event of the insured’s death.

3. Cash surrender value: The amount the policyholder would receive if he were to surrender

the policy. The owner receives the money, but the policy is cancelled.

4. Face Amount: The amount specified on the policy that the beneficiary would receive if

the insured were to die. Same as face value.

5. Insurability: The determinant of medical qualification. A person with a poor health would

be a high risk for insurance companies. Such a person could be said to be uninsurable.

6. Insured: The person covered by the policy. May or may not be the policy owner.

7. Insurer: The company that writes and accepts some degree of risk for the insurance

buyer as specified in the policy.

8. Nonparticipating Policy: A policy that does not pay dividends.

9. Participating Policy: A policy that pays dividends to policyholders.

10. Premium: The charges for the policy. Premiums are charges the policyholder will pay for

the insurance and, if applicable, for cash value build-up.

11. Recission: Means cancellation of a policy.

 12. Rider: Attached options to the policy that may give the insured increased flexibility.

Usually, a charge is added for the rider.

13. Risk: The chance that loss will occur.

14. Underwriters: A staff of full-time risk analysers. They determine whether an applicant

should be approved for insurance.

1.10 METHODOLOGY

The source of data required for this project is from both primary and secondary data. The

secondary data will be sourced from textbooks, journals and the internet.

Primary data will be from direct observation of consumers and administration of questionnaires.

The questionnaire contains several structured questions to probe into the research problem.

Analysis of research data will involve data preparation, tabulation and data presentation and

analysis
 REFERENCES

Feng, Y., & Jimenez, J. (2020). Factors influencing the demand for life insurance in the GCC

countries. Journal of Financial Services Research, 58(1), 39-57.

Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2014). Financial literacy, financial

education, and downstream financial behaviors. Management Science, 60(8), 1861-1883.

Oloruntegbe, K. O. (2019). Insurance, death and bereavement among the Yoruba in Nigeria.

Journal of Financial Services Marketing, 24(2), 56-66.

Pan, Y., & Hogg, G. (2018). Consumer trust in insurance services: The role of service quality

and insurer characteristics. Journal of Services Marketing, 32(1), 20-33.

Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market

participation. Journal of Financial Economics, 101(2), 449-472.

Abraham, A., & Ravid, S. A. (2008). A note on the perception and usage of insurance. Journal of

Banking & Finance, 32(1), 86-91.

Feng, Y., & Jimenez, J. (2020). Factors influencing the demand for life insurance in the GCC

countries. Journal of Financial

Services Research, 58(1), 39-57.

Chiappori, P. A., & Salanié, B. (2016). The economics of insurance and its borders with general

finance. Journal of Risk and Insurance, 83(1), 5-34.

Oloruntegbe, K. O. (2019). Insurance, death and bereavement among the Yoruba in Nigeria.

Journal of Financial Services Marketing, 24(2), 56-66.

Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market

participation. Journal of Financial Economics, 101(2), 449-472.