Microinsurance in India: Affordable Coverage for Low-Income Groups

Posted on: Jan 2, 2025 | 3 mins | Written by: HDFC ERGO Team

Microinsurance in India: Affordable Coverage for Low-Income Groups

Every week, you go to buy vegetables from Pushpa, a vendor in your neighbourhood. One day, you learn she had to close her shop because she isn’t well. You go to help her financially so she can get quality treatment. She is grateful for your help. While your act of kindness is appreciative, do you know how you can really help people like Pushpa? You can inform them about microinsurance policies in India. A considerable chunk of the Indian population is underprivileged, and they hardly have any savings or knowledge of insurance plans. That’s why a big medical emergency or the death of the family’s breadwinner puts them under huge financial strain. Microinsurance can help prevent such devastating financial setbacks. Let’s learn how.

What is Microinsurance in India?

Microinsurance in India is a category of insurance plans specially designed for low-income groups. At affordable premiums, such policies provide basic coverage and financial security against risks like health issues, accidents, crop failures, natural disasters, etc. The objective of microinsurance plans is to make insurance coverage accessible to the economically weaker sections of society who are otherwise unable to afford traditional insurance policies, including a health insurance policy.

Created and governed by the Insurance Regulatory and Development Authority of India (IRDAI) as per IRDAI Micro Insurance Regulations, 2005, such policies can belong to the General Insurance or Life Insurance category. The sum insured offered by microinsurance plans can be a maximum of Rs 50,000.

Types of Microinsurance Plans

Microinsurance policies are mainly of two types –

1. General Microinsurance: These policies provide financial protection against potential risks. The policies include health insurance, accident insurance, crop insurance, livestock insurance, asset insurance, etc.

2. Life Microinsurance: These plans can be term plans or endowment policies. They come with affordable premiums and provide financial support to the family of the insured in case of the policyholder’s accidental death. The plans come with the option of opting for with and without accident benefit and are available as individual and group plans.

How Does a Microinsurance Policy Work?

A microinsurance policy provides financial aid to low-income households or those with minimal savings against a variety of risks. This is how microinsurance in India works –

• Microinsurance policies are distributed through self-help groups (SHGs), NGOs, and microfinance institutions.

• Premiums are affordable to make it accessible to low-income groups and can be paid in small instalments.

• The maximum sum insured under a microinsurance policy is Rs 50,000.

• These policies cover only specific risks relevant to the policyholder, such as basic health needs, accident risks, crop failure, etc.

• Insurance companies can sell the policies as a package belonging to either the life insurance or general insurance category or as composite covers.

Advantages of Choosing Microinsurance Policies

Some advantages of having a microinsurance policy are –

• It helps cover medical expenses, whether it’s an emergency or planned procedure, providing financial relief to the economically weaker sections. The expenses incurred on hospitalisation, pre- and post-hospitalisation, diagnostic tests, consultations, surgeries, etc., are covered.

• It provides financial support to the family in case of the accidental death or disability of the insured.

• It offers survival and death benefits as per policy terms and conditions.

• In case of damage to property/assets due to natural disasters, microinsurance will cover the loss. The insured will also get compensation in case of theft of assets.

• It protects farmers against crop failure or damage owing to natural calamities like floods, pests, or droughts.

• If there’s any loss of livestock due to accidents or ailments, the insurer will provide compensation.

Importance of Microinsurance Policies

1. Such policies safeguard the economically weaker population against unforeseen risks like accidents, illnesses, crop failures, etc.

2. The low premium is an advantage, making it affordable for low-income families and enjoy the policy benefits.

3. As vulnerable communities have minimal or no savings to handle adversities, such policies help them tide over the crisis without breaking their savings.

4. Due to the financial security provided by such plans, they can take risks to build assets without the fear of losing their money due to unforeseen events.

5. By making healthcare affordable, low-income families can have access to timely treatment, leading to better health outcomes. Good health, in turn, improves productivity and quality of life.

Conclusion

The traditional insurance policies are out of reach for the economically vulnerable population because of the high cost. To make insurance accessible and affordable, the IRDAI introduced microinsurance policies, which act as a safety net against unfortunate events. If the coverage amount is inadequate for critical ailments, the insured can consider buying critical illness insurance for complete protection.

FAQs

1. Why do microinsurance policies have a low sum insured?

Microinsurance policies are low-cost insurance plans; hence, the sum insured is low. A high sum insured will lead to higher premiums and the low-income groups cannot afford it.

2. Can I add a beneficiary to a microinsurance policy?

Yes, you can add a beneficiary to a microinsurance policy.

3. What is the maximum sum insured under a microinsurance policy?

As per IRDAI, microinsurance policies can offer a maximum sum insured of Rs 50,000.

4. How many types of microinsurance policies are available in India?

Microinsurance policies are broadly of two types – General Microinsurance and Life Microinsurance. While General Microinsurance covers the health and assets of the insured, Life Microinsurance provides death and disability benefits to the family of the insured.

5. Are there any inclusions and exclusions in microinsurance?

There are no set inclusions and exclusions, but it is better to check with the insurer and read the policy document carefully while buying the plan.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

What is Micro Health Insurance and Why is it Important?

Understanding policy period in health insurance

List of government Mediclaim policies for families

17 Types of Government Health Insurance Schemes in India

Do You Know About The New Health Insurance Claims Norms Introduced In 2024?