An overview of micro insurance in India

The rural population comprises a majority of the population in India. People living in rural areas are poor and have limited incomes to meet their living costs. As such, the concept of insurance is not very relevant for them. However, the need of insurance is higher for rural individuals as the financial losses that they face due to uncertainties can make their lives very difficult. An insurance plan can cover such financial losses giving them a big relief. Understanding the need for insurance for the rural segment of India, the Insurance Regulatory and Development Authority (IRDA) passed the IRDA Micro Insurance Regulations in the year 2005. These regulations created the concept of micro insurance. Let’s understand what micro insurance is all about –

What is micro insurance?

Micro insurance means insurance plans which are created for providing insurance solutions to individuals living in a rural area. An area is said to be rural if the total population in the area is below 5000.

Features of micro insurance policies

Here are some of the main features of micro insurance policies which are available in India –

  1. There are different types of micro insurance plans available in the market. These plans can be life insurance or general insurance plans
  2. The sum insured under micro insurance plans is restricted to up to INR 50,000. This is done to ensure that premiums are low and affordable for the rural population
  3. IRDA has made it mandatory for life and general insurance companies to sell a specific portion of micro insurance policies every year. This has been done to promote the penetration of micro insurance in the rural sector which would create social welfare. As such, insurers are supposed to source a part of their business from rural sectors
  4. Specialised micro insurance agents are appointed to sell micro insurance plans
  5. The premiums are very low under micro insurance policies and can also be collected weekly in some cases

Types of micro insurance plans

Insurance companies offer different types of micro insurance plans for the rural sector. Some of the most common types of micro insurance plans are as follows –

  1. Term life insurance

Term plans provide financial security to the insured and his family members. The plan ensures that if the insured dies during the policy tenure, the family receives a benefit to bear the financial loss that they suffer.

  1. Endowment insurance

These plans provide policyholders with dual benefits of insurance and savings. Individuals can save over the policy period to create a corpus on maturity. Moreover, in case of premature death, the sum assured is paid to compensate the financial loss.

  1. Health insurance

Health insurance policies cover the cost of hospitalisation if the insured falls sick and needs medical help. These policies, therefore, cover medical bills and help individuals deal with the financial aspects of their sickness.

  1. Livestock insurance

This insurance policy covers the financial loss suffered by farmers or individuals who rear livestock when animals die or fall sick.

  1. Hut insurance

Hut insurance covers the damages suffered by the huts of individuals in which they live. Hut insurance policies are like property insurance policies where the insured property is the hut.

  1. Personal accident insurance

Under personal accident insurance plans, loss of life due to accidents and disablements are covered. If the insured dies or becomes disabled accidentally, these plans pay a lump sum benefit.

  1. Crop insurance

Crop insurance plans cover the loss suffered by farmers when their crops are damaged due to natural disasters. These plans pay the financial loss suffered thereby compensating individuals for the loss of livelihood.

Benefits of micro insurance 

Micro insurance definitely benefits the rural segment by providing them with an insurance cover. This cover helps the lower and backward class people with the following benefits –

  1. Life insurance plans provide financial security when the bread-winner of the family dies
  2. Savings oriented insurance plans help poor people save in a disciplined and affordable manner to create a corpus for their future
  3. Health insurance plans ensure that economically weaker individuals get access to quality healthcare facilities when they need medical assistance 
  4. Livestock insurance plans help individuals face the financial loss when their livestock die
  5. Crop insurance plans are very essential for farmers as the plans protect them financially in case of crop related damages
  6. The premiums are low and affordable and help rural people improve their standard of living

Who can sell micro insurance plans?

Micro insurance policies can be sold by the following –

  • Non-Governmental Organisations (NGO)
  • Self-Help Groups (SHG)
  • Micro Finance Institutions (MFI)
  • Micro insurance agents

Potential setbacks in the development of micro insurance

Though IRDA introduced the concept of micro insurance to promote the welfare of the rural segments, micro insurance policies are still to make a big impact. Despite the availability of micro insurance plans, the penetration is low. The potential setback is the lack of knowledge. Many rural individuals are unaware of the importance of micro insurance plans and so they shy away from it. Moreover, premium payments are considered to be a burden thereby resulting in low penetration on micro insurance plans.

The road ahead 

IRDA has been organising awareness programs through the help of NGOs, SHGs and MFIs. These programs are expected to increase the knowledge of micro insurance among individuals and drive sales. Moreover, the distribution channels are also becoming wider so that micro insurance plans can reach the nooks and corners of the country. Nowadays, the plans can be bought online making them easier to buy.

The bottom line

Insurance is essential for the economically challenged population of India and IRDA is trying its best to promote microinsurance among individuals. Different types of microinsurance plans are being offered with better coverage benefits and lower premium rates. So, if you live in a rural area, buy a micro-insurance plan for your financial security.

Frequently Asked Questions:

  1. What is the premium for micro insurance plans?

The premium for micro insurance is very low and it depends on the type of policy that you buy.

  1. Can I cover the whole family under micro health insurance plans?

Yes, micro health insurance plans allow coverage for the whole family under family floater plans. The family would include self, spouse and a maximum of three dependent children.

  1. Can micro insurance plans be offered as group insurance plans?

Yes, micro insurance plans come as both individual plans as well as group plans. Under group micro-insurance, a bank, a self-help group or any other registered group can buy a suitable micro insurance policy for the coverage of its members.

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