It is a safe bet to say that most owners of wealth intend for that wealth to pass from them to some other person or future generation after they are gone. This is known as an intergenerational legacy transfer. Structures such as Wills, gifts and trusts are put in place to make this possible and ensure that properties, both real and personal, go to the intended beneficiaries at the desired time. However, it seems paradoxical that most wealth owners pay more attention to the disposition of their assets, than to ensuring that the disposed assets actually reach their intended beneficiaries. The story of Chief and Mrs. Brown underscores the importance of insurance in intergenerational wealth management.
Chief Ganiyu Brown and Mrs. Chidinma Brown got married over forty-eight years ago. Through hard work, the couple built their empire from scratch until it comprised vast real estate businesses across the different states in Nigeria, as well as investment interests in blue chip companies worth millions of naira. However, it was a mere twelve years ago that they had their only daughter through an IVF-assisted conception. Although Chief and Mrs. Brown are now advanced in age, they constantly worry about what will become of their growing daughter when they eventually pass on.
While the couple have jointly 'put their house in order' by writing a will and lodging same in a probate registry, they are determined to ensure that their assets do not get lost, damaged, mismanaged or deteriorated pending when their only child assumes the management of their wealth. Their lawyer advised that an insurance agent should be consulted to advise on how to insure their property for the future, until their daughter takes over as planned.
The Browns were advised that it is imperative for wealth owners to plan not only for the succession of wealth to the coming generation, but also to place attention on securing the assets, especially real assets, from any eventuality which may preclude their intended beneficiary from taking benefit of the assets in the future. One such means to achieve this, is taking out a long-term insurance policy over the assets. This will ensure that assets left behind will be repaired or replaced in the event of any disaster that damages the assets.
A decade later, the elderly couple pass on and Busayo who is now a grown lady, is faced with the challenge of managing her family legacy. Although overwhelmed with the loss of her parents and the task of managing their enormous legacy, she is nonetheless grateful that her source of livelihood is guaranteed. While reveling in this comfort, she suffers what seems to be a major setback when three months after her parents' demise, a fire outbreak engulfs the largest piece of real estate bequeathed to her. This real estate situates the headquarters of all the family's business ventures and provides her the principal source of income. As a result of the fire, her luxurious residential home, commercial apartments, and equipment used in the family business operations are destroyed.
Initially distraught by news of the fire, she quickly recalls a discussion with her parents about insuring their tangible assets (land, buildings, cars, equipment etc.) to transfer the risk associated with owning them to the insurance company. Excitedly and with more than a dose of anxiety, she puts a call to the insurance company to notify them of her dilemma and to make claims in respect of her loss. Her excitement is quickly cut short when she is informed that the insurance contract is unenforceable because her parents never paid the premium for the risk cover after signing the insurance contract. Utterly confused and unsure of her position, she arranges to meet with her bosom friend Bola who is an insurance broker. She believes Bola will provide her with guidance and advise on the distressing feedback received from the insurance company.
Bola's advice after listening carefully to Busayo, was that payment of an insurance premium is the only acceptable consideration for the execution of an insurance contract. In other words, the payment of the premium is the basis upon which any beneficiary can validly make a claim for compensation for loss or damage of insured assets. Busayo was baffled as to how her parents could have made this costly error. Bola sympathetically explained that there were two options available for the deceased Chief and Mrs. Brown: either to set up a trust structure which would have managed the payment of premiums on the property even after they were no more, or to make a long term payment which would then be spread over a number of years. The latter option would have ensured that the assets were insured irrespective of the length of time before Busayo took over benefit of the disposition. Unfortunately, due to incomplete information, Busayo is now potentially left without remedy.
Before the introduction of the Insurance Act 2003, there was no principle of law which made an insurance contract invalid simply because full payment of the premium was yet to be paid or that no premium was paid at all. What was important was that there was a contract of insurance. However, the insurer could demand payment of the premium before the contract could become operative1. The position of the law has now changed in this regard. The payment of premium is an essential feature of the validity of an insurance contract. Section 50 of the Insurance Act2003provides as follows:
"The receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance."
The Court of Appeal in Unitrust Insurance Co. Ltd. v. AmbicoSendirian Nigeria Ltd2reinforced this position when it held that there is no doubt that statutorily, the premium must be prepaid and fully too. Where the law is silent on whether the premium shall be paid fully or by installment, the presumption is that it should be paid fully, and this, by virtue of Section 50(1) of the Insurance Act, in advance. Once the rate of premium is fixed and the insured has paid the sum after the advice of the insurer, a valid contract of insurance has been completed3
The survival of a legacy is a challenge faced by many and creating a strong foundation that guarantees that a legacy lives on, is of utmost importance. In Busayo's case, her investigation into the terms of the insurance contract led her to discover that it had been agreed that parties pay the premium in advance. Consequent to the terms of the said contract, and the failure of her parents to fulfill their obligations, she was unable to recuperate the loss from the fire outbreak.
It is therefore most helpful for asset owners to seek the advice of a team of experts such as lawyers, accountants etc. to advise appropriately on the best way to protect their legacy within the full ambit of the law.
1 Ngillari v. Nicon(1998) LPELR-1989(SC)
2 (2012) LPELR-15417(CA); Ajaokuta Steel Co. Ltd v. Corporate Insurance Ltd. 2004, 16 NWLR (Pt.899) 367 At 397
3 Yadis Nigeria Ltd v. Great Nigeria Insurance Company Ltd (2000) LPELR-10365(CA)
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