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The short answer
The insurance fee on most Nigerian personal loans is credit life cover: if the borrower dies, and on some policies becomes disabled or loses their job, the insurer pays the outstanding loan to the lender. It is part of the cost of borrowing, so add it to interest and other fees when you compare offers; on a ₦1,000,000 loan, a 2% charge adds ₦20,000.
Offer letters from Nigerian banks often show an insurance percentage beside the interest rate and management fee. App lenders sometimes include a protection or insurance charge too. Borrowers tend to skim past it because it is small next to the interest, but it is real money, it is often compulsory, and it can be financed into the loan so that you pay interest on it. This guide explains what the cover usually does and how to count it.
What credit life insurance covers
Credit life insurance is a policy tied to a specific loan. If an insured event happens while the loan is running, the insurer pays the outstanding balance to the lender. The policy is usually arranged by the lender with an insurer it works with, and the premium is collected through the loan. The events covered depend on the policy:
- Death of the borrower: the most common cover.
- Permanent disability: included on some policies.
- Job loss: included on some salary-backed products, usually for a limited number of instalments or a portion of the balance.
Sterling Bank's loans page (checked October 2026), for example, lists credit life and job loss cover at 1% a year of the mortgage exposure on its home finance product, and a 2% insurance fee on its payroll personal loan. Vehicle and asset loans usually carry a separate charge to insure the asset itself; Sterling's page lists 5% of vehicle value for vehicle finance.
Who benefits
The lender is the direct beneficiary: the policy protects its loan. You and your family benefit indirectly, because the debt is cleared rather than pursued against your estate or a guarantor. That indirect benefit is worth something, particularly on a large or long loan. But it is not a life policy for your family; no money goes to them beyond the debt being settled. See who pays a loan when the borrower dies for the wider picture.
For app-based consumer lenders, the FCCPC's Digital, Electronic, Online, or Non-Traditional Consumer Lending Regulations, 2025 list among the required contents of a loan agreement any "requirement for insurance or indemnity of the lenders' liability under the Agreement", so the agreement should state whether insurance applies. This is information, not legal advice.
How to add it into total cost
Labelled example, using the payroll-loan percentages on Sterling's page purely for illustration: ₦1,000,000 over 12 months at 39% a year on a reducing balance, with a 1% management fee and 2% insurance.
| Example | Fee paid upfront | Insurance added to the loan |
|---|---|---|
| Amount borrowed | ₦1,000,000 | ₦1,020,000 |
| Monthly instalment | ₦101,967.19 | ₦104,006.53 |
| Interest over 12 months | ₦223,606.25 | ₦228,078.38 |
| Insurance | ₦20,000 paid at start | ₦20,000 inside the loan |
| Management fee (1%) | ₦10,000 | ₦10,000 |
| Total cost | ₦253,606.25 | ₦258,078.38 |
When the ₦20,000 premium is financed, you repay ₦24,472.13 more over the year than in the first column's instalments: the ₦20,000 itself plus ₦4,472.13 of interest on it. When it is paid or deducted upfront, you avoid that interest but receive less cash to use. Either way, the insurance belongs in the total.
One-off versus yearly charges
A one-off percentage, such as 2% at drawdown, is easy to count. A yearly percentage of the balance, as on many mortgages, falls as the loan is repaid. Labelled example: 1% a year on a ₦10,000,000 mortgage balance is ₦100,000 in the first year, and less each year after. Ask for the schedule of insurance charges for the whole term.
Questions to ask the lender
- Is the insurance compulsory, and can I use an existing life policy assigned to the lender instead?
- Which events are covered: death only, or also disability and job loss?
- Is the premium paid upfront, deducted, or added to the loan?
- If I repay early, is any unused premium refunded?
- Who is the insurer, and how does my family make a claim?
- Are there exclusions, such as existing illnesses or the first months of the loan?
Keep a copy of the policy schedule with your loan documents, and tell a family member where it is. If the answers are not in the offer letter, ask for them in writing. A policy your family does not know about is hard to claim on.
Comparing offers with and without insurance
When one lender includes insurance and another does not, the cheaper-looking loan may leave a debt for your estate or your guarantor. Compare total cost first using cost per ₦1,000 borrowed, then decide whether the cover is worth the difference. Other fees are covered in processing and management fees.
Where Pryme fits
For any Loan on Spaces from Solid Allianze MFB, every charge is shown in the agreement before you accept; our guide What does a Loan on Spaces cost? explains where to look.
Questions people ask
Why is there an insurance fee on my bank loan?
Most personal loans carry credit life insurance, which pays the outstanding loan to the bank if the borrower dies, and on some policies if they become disabled or lose their job.
Is loan insurance compulsory in Nigeria?
Many lenders make it a condition of the loan. Ask whether you can assign an existing life policy instead; the offer letter should state the requirement.
Do I get my loan insurance money back if I repay early?
It depends on the policy. Ask the lender whether unused premium is refunded before you accept.
Does loan insurance pay my family?
Usually not directly. It pays the lender, which clears the debt so it is not pursued against your estate or guarantor.
Sources
- Sterling Bank: Loans (payroll, vehicle, home and SME loan terms) · accessed Oct 2026
- FCCPC: Digital, Electronic, Online, or Non-Traditional Consumer Lending Regulations, 2025 (made 21 July 2025) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.