The primary objective of micro insurance is to provide low-cost insurance against low premium payments. Hence, the sum assured value becomes low.
What is Micro Insurance: Definition, Types, Importance and Benefits
What is Micro Insurance?
Micro Insurance is defined as a category of insurance plans designed to benefit low-income families. Unlike a comprehensive insurance plan, it offers financial security for only the basics. This reduces the policy cost considerably, which is why the insured has to pay smaller premiums.
For example, a person can purchase a micro insurance policy to insure him/her against a particular illness or insure a valuable item by paying an affordable premium. In this regard, it is essential to note that the coverage offered for micro insurance can only be up to ₹50,000.
The Insurance Regulatory and Development Authority of India (IRDAI) introduced micro insurance in India. This association also governs the micro insurance market in India as per the IRDAI Micro Insurance Regulations, 2005.
How does Micro Insurance work?
Micro Insurance plans are ideal for people who earn a low annual income and have minimal savings. These policies provide financial aid to policyholders to tackle emergencies like medical expenses etc., against a minimal premium paid on a recurring basis.
The micro insurance plan covers only certain risks relevant to the insured, like chronic diseases, accident risks, etc.
The maximum cover amount for micro insurance in India is ₹50,000. People who cannot afford expensive comprehensive plans can benefit from micro insurance schemes. The policyholders enjoy financial security without spending much.
Micro insurances are often distributed through organisations like NGOs to reach the target group and benefit the low-income category.
What are the Types of Micro Insurance Policies?
1. Life Micro InsuranceLife micro insurances are term plans or lifelong plans that offer low cover values. These micro insurances have long-term maturity and offer dependable coverage at low premiums.
2. General Micro InsuranceGeneral micro insurances include health insurance, asset insurance, accident insurances, etc., which offer safety against all necessary risks against an affordable premium. Policyholders can insure themselves against a particular disease or insure their automobile by purchasing micro insurance.
What are the Benefits of Micro Insurance?
1. Life Micro Insurance Benefits
- Micro Life insurance policies provide a financially secured retirement life for the lower income group who cannot afford retirement planning.
- In case of the unfortunate demise of the policyholder, these plans provide death benefit cover to the family, which can otherwise be a costly affair.
2. General Micro Insurance Benefits
- This provides financial aid during health emergencies to people belonging to the economically weaker section. Hazardous accidents like fire, etc., can be financially shattering for lower economic class people. A micro insurance policy can be of tremendous help during such circumstances.
- Micro Insurance protects assets and personal property for people who cannot afford damages.
- Micro Insurance policy insures unfortunate incidents like theft and damage to assets, providing a sense of safety to the policyholder.
What is the Importance of Micro Insurance?
Micro Insurance penetrates the affordability barrier for the lower-income group in the society.
- Such policies help financially weaker families enjoy policy benefits in exchange for affordable premiums.
- Low-income individuals do not have high-volume savings to spend during uncertain situations. Such policies allow policyholders to recover from financial emergencies without breaking their savings.
- These insurances also provide a sense of financial safety for the low-income group, allowing them to take more risks to build financial assets.
Although a Micro insurance policy offers a limited coverage value, it is an affordable financial tool for low-income group families.
FAQs Related To Micro Insurance
Yes, you can add a beneficiary to a micro insurance policy. Your nominated beneficiary will receive the death benefits from the insurer in case of your untimely demise.
Yes, you can avail such covers in products offered under the micro insurance category.
There are no set inclusions and exclusions for micro insurance plans, and they vary based on the cover and premium.
Important Guides related to Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.