Background: Studies have documented how out-of-pocket payments (OOP) and user fees result in catastrophic health expenditures, providing evidence that health systems are better financed through prepayment mechanisms such as health insurance. Aim: This study sought to determine the perception of community residents to health insurance, their pattern of health service utilization and method and amount of payment. Methods: This descriptive cross-sectional study among 422 household members in Mushin LGA obtained data on sociodemographic characteristics, perception of health insurance, enrollment status and willingness to enroll; last use of health services and method of payment for health care services. Data analysis was done with Epi-info (ver 7) and results were presented as frequencies, percentages, means and standard deviations. Statistically significant associations were determined using the Chi-square test at significance level of p < 0.05. Results: Over half the respondents (56.6%) had not heard about health insurance. Very few (19.7%) were enrolled. Of those not enrolled, 57.1% were willing to consider buying health insurance. The method of payment for health services reported by respondents was OOP (98.3%). Those in younger age groups, with higher levels of education and higher household incomes reported having heard of health insurance. Higher educational level and household incomes were positively associated with willingness to enroll in a health insurance scheme. Conclusion: Awareness was insufficient, health services were paid for mostly from OOP. The authors recommend taking the opportunity to encourage uptake of health insurance for young adults and those in low- and middle-income households.