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Microinsurance Policies in India: Meaning, Benefits and Importance

Team AckoJul 22, 2021

A huge segment of the Indian population is underprivileged. Due to this lack of privilege, they do not have the capacity or access to benefit from various financial services such as banking, insurance, credit, etc. This is where concerned authorities step in and help such sections of society to empower them and grant access to financial products and services. Microinsurance is one such effort to help people belonging to the low-income group. Read ahead to know more about Microinsurance in India in detail.

Micro Insurance Policy

What is Micro insurance in India?

Microinsurance is a category of insurance policies designed for the betterment of the economically vulnerable population of the country. This category has been created by the Insurance Regulatory and Development Authority of India (IRDAI). Microinsurance is governed as per the IRDAI Microinsurance Regulations, 2005. Such a policy can belong to General Insurance as well as the Life Insurance category. However, the defining quality of such policies is that the sum assured offered by them is equal to or less than Rs. 50,000.

Microinsurance can enable some sort of insurance cushioning for the economically vulnerable population. Such plans can provide a sense of security to low-income people that are unable to afford the popular form of insurance.

Types of Microinsurance Plans:

Microinsurance plans can be divided into the following two broad categories.

1) General Microinsurance

A General or regular Microinsurance product covers health insurance, personal accidents, and assets such as livestock, hut, etc. This product can be availed at an individual or a group basis. 

2) Life Microinsurance

A Life Microinsurance Plan can be Term or an Endowment Plan. It can be purchased at an individual or a group level and with or without an accident benefit. Such plans can also be related to health insurance.

How Does a Microinsurance Policy Work?

Here are some points highlighting the working of a Microinsurance Policy in India.

  • Microinsurance policies are distributed via Non-governmental Organizations (NGOs), Self-help Groups, and Micro-finance Institutions.

  • The premium for such plans is nominal to widen the reach and ensure engagement at a large scale.

  • Insurers have the freedom to offer composite covers or a packaged product belonging to either the General Insurance or the Life Insurance category.

  • Insurers also offer some Microinsurance Policies in case the sum assured of a policy is within the range specified by the authorities.

Advantages of Choosing Microinsurance Policies:

The biggest advantage concerning Microinsurance is that it offers the opportunity for the economically vulnerable section of the population to buy insurance at a low cost. Because of buying Microinsurance Policies, they can receive financial assistance during challenging times. This will result in the safeguarding of their savings, which are usually on the lower side. Here are some top advantages of specific Microinsurance Covers.

1) Endowment/Pension Microinsurance

It offers survival as well as death benefits as per the terms and conditions

Pension allowance can also be built-in

2) Term Microinsurance

Covers life risk with accidental benefits

Some insurers offer permanent disability benefits

3) Health Microinsurance

It covers pre-and post-hospitalisation expenses

Covers medical bills for diagnosis, medical bills, etc.

4) Property Microinsurance

It offers coverage due to damage/losses of properties due to natural calamities.

This policy offers compensation due to the theft of assets.

Importance of Microinsurance Policies:

Here’s why such policies are important.

  • They are an accessible risk-management tool to reduce financial vulnerability in times of adversity.

  • The affordable premium of such plans is an incentive for better reach in an organized manner.

  • Microinsurance covers the policyholder’s financial liability as per the chosen plan.

  • Microinsurance helps the poor to save money.

  • Can bring about a positive change in poor people’s perception of insurance.

Frequently Asked Questions:

This section will throw light upon some questions and answers related to Microinsurance Policies in the country.

Q1) What is Microinsurance?

Microinsurance is a category of insurance policies tailored for the economically vulnerable to insure themselves, their household and other assets at a lower premium.

Q2) What is the maximum sum assured under Microinsurance?

As per IRDAI regulation, the maximum sum assured under Microinsurance is Rs. 50,000 or lower.

Q3) Why is the sum assured low in microinsurance?

Microinsurance plans need to be positioned as low-priced plans. This will not be possible in case the sum assured is on the higher side. The higher sum assured would lead to a higher premium, which will defeat the purpose of the plan.

Q4) Why is Microinsurance important?

Microinsurance is crucial for the lower-income group to protect the little savings that they have. It helps cover future liabilities at a low cost. By paying a comparatively lesser premium, they can get a sum assured up to Rs. 50,000. In the absence of such a plan, their savings can get exhausted due to a once uncertain event such as a natural calamity.

Q5) What do you mean by Micro health insurance?

Micro health insurance is a type of Microinsurance Plan offered to the rural section in India. It usually covers illness, injury, and medical bills within a lower insurance premium.

Q6) What is the difference between Microinsurance and Bite-sized insurance?

Microinsurance is a tool to support individuals with low incomes and to meet their insurance needs at a lower premium. On the other hand, Bite-sized Insurance is a category for short-term policies curated to cover specific needs such as domestic travel insurance, or trip insurance, etc.

Q7) Does Microinsurance have a pension-related component?

Yes, a pension-related component can be built-in the policy. This brings in the savings element in the cover.

Q8) Is Freelook Cancellation allowed in Microinsurance?

Such a feature can be allowed in some type of Microinsurance Policies. The details can be checked in the individual Policy Wordings of the policy.

Q9) Is there a provision of a refund in Term Insurance?

A refund can be provided in some situations in case of a Microinsurance Term Insurance Policy. For example, a refund to the family is possible in case of suicide within a year of policy purchase.

Q10) Is it possible to buy coverage against disability due to accidents under the Microinsurance category?

Yes, such a cover can be availed under the products offered under the Microinsurance category in India.

Q11) What is the major difference between Microinsurance Policies in India as compared to Microinsurance Policies in foreign countries?

In India, Microinsurance is directed towards the economically vulnerable section of the society. In other countries, this direction can be towards other sections of the society based on their economic, geographic, and societal challenges. For example, some countries have Microinsurance Policies for disaster relief.

Q12) What is the basic difference between General Microinsurance and Life Microinsurance Policies?

The basic difference between General Microinsurance and Life Microinsurance Policies is that General Microinsurance Policies covers health and property of the insured while Life Microinsurance Policies cover the life (for example, death benefit) of the insured.

Q13) What is the eligibility criteria to avail Microinsurance?

As Microinsurance is a category and not a specific policy, the eligibility criteria to avail the policy will depend upon the specific policy’s terms and conditions.

Q14) What is the primary objective of Microinsurance Policies in India?

Microinsurance as a category came into existence to serve the economically vulnerable section of the society by providing them an opportunity to avail insurance benefits at a low cost.

Q15) What are the inclusions and exclusions of a Microinsurance Policy?

There are no standard set of inclusions and exclusions for such plans. The inclusions and exclusions of Microinsurance Plans will vary as per their cover and the premium.

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CIN: U66000KA2016PLC138288

IRDAI Registration No: 157

Category: Non-Life Insurance

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