Everything You Need to Know About Microinsurance Policies Available in India

India is a country where a significant portion of the population faces various economic vulnerabilities. Individuals lacking privilege face limitations in taking advantage of diverse financial services such as banking, insurance, credit, and more. Therefore, the government takes action to support and enable these marginalised segments of society, granting them access to financial products and services. Microinsurance emerges as a notable initiative aimed at assisting individuals in the low-income bracket. The government aims to empower and uplift these individuals and ensures they have the means to safeguard themselves financially by providing this form of insurance. This article elucidates everything you need to know about the Microinsurance policy in India.

What Is Microinsurance?

Microinsurance is a specialised form of insurance specifically tailored to address the needs of economically vulnerable individuals in the country. These policies have been established by the Insurance Regulatory and Development Authority of India (IRDAI) and are regulated under the IRDAI Microinsurance Regulations of 2005. Microinsurance policies can fall under both General Insurance and Life Insurance categories. However, what distinguishes them is that the sum assured, or the coverage amount, is equal to or less than Rs 50,000. By offering these policies, Microinsurance provides a degree of insurance protection to low-income individuals who may not have access to or be able to afford traditional insurance options, giving them a sense of financial security.

The Distribution of Microinsurance in India:

Distribution plays a pivotal role in the insurance value chain, particularly for Microinsurance, where customers are often semi-literate or illiterate, financially constrained, and geographically isolated. Effective distribution becomes even more crucial in the case of voluntary Microinsurance, as it requires a persuasive selling approach. However, the low penetration of insurance among the low-income segment presents a significant opportunity both in terms of business potential and extending financial protection to those who need it most.

Numerous efforts have been undertaken in the past to tackle the distribution challenge in Microinsurance. The introduction of the concept of "Microinsurance agents" in 2005 aimed to attract more intermediaries and leverage the existing networks of grassroots organisations such as cooperatives and self-help groups (SHGs) that have connections with a large portion of the low-income population. While this initiative succeeded in enlisting a significant number of Microinsurance intermediaries, the overall volume of premium collections and lives covered remains modest.

The distribution of Microinsurance faces several key challenges, including:

• Limited premium amounts combined with high transaction and service delivery expenses

• Insufficient development of a business model capable of attracting competent intermediaries

• The need for capacity building among intermediaries to effectively promote and sell Microinsurance products

• Limited awareness and knowledge among the target population regarding the functioning and benefits of insurance

What Are the Types of Microinsurance?

Microinsurance plans can be categorised into two main types:

General Microinsurance

General Microinsurance encompasses coverage for health insurance, personal accidents, and assets like livestock. These policies are available for individuals or groups, providing protection against various risks.

Life Microinsurance

Life Microinsurance includes both Term and Endowment plans. These policies can be purchased individually or as a group and may include options for accident benefits. Life Microinsurance plans can also be linked to health insurance, offering a comprehensive coverage package.

Here Are the Key Types of Microinsurance in India:

Endowment/Pension Microinsurance - This type of Microinsurance provides both survival and death benefits to insured individuals. The inclusion of a pension allowance makes it particularly appealing to a significant number of individuals.

Term Microinsurance - Term Microinsurance policies offer benefits in the event of accidents or permanent disabilities.

Health Microinsurance - Health Microinsurance plans cover pre- and post-hospitalisation expenses, as well as other medical bills. Additionally, there are options to provide health insurance for employees, enabling them to comfortably handle small medical expenses.

Property Microinsurance - Property Microinsurance offers coverage for damages to property caused by theft or natural disasters.

How Does a Microinsurance Policy Work?

Here are the key aspects highlighting the functioning of a Microinsurance Policy in India:

• - Microinsurance policies are distributed through various channels, including Non-governmental Organisations (NGOs), Self-help Groups, and Micro-finance Institutions.

• - The premiums for such policies are set at a nominal rate to enhance accessibility and encourage widespread participation.

• - Insurers have the flexibility to provide composite coverage or packaged products that fall under either the General Insurance or the Life Insurance category.

• - Insurers also offer Microinsurance Policies that comply with the specified sum assured range set by regulatory authorities.

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What Are the Important Microinsurance Regulations in India?

To promote the accessibility of Microinsurance to the lower-income segments of society, the Insurance Regulatory and Development Authority of India (IRDAI) has established Microinsurance regulations. These regulations, introduced in 2005 and subsequently amended, provide a framework for the distribution of affordable insurance products to both rural and urban poor populations, integrating Microinsurance into the broader insurance system of the country.

In July 2015, the IRDAI notified the Microinsurance Regulations 2015 to further develop the Microinsurance market in India. However, apart from government-sponsored social security schemes like PMJJBY, PMSBY, PMSYM Yojana, and PMJAY (Ayushman Bharat), the coverage provided through Microinsurance remains relatively low.

Key regulations and amendments in the Microinsurance sector implemented in 2015 include:

• - The maximum sum assured for insurance products offering life, pension, or health benefits is set at Rs 2,00,000.

• - The annual premium for micro variable insurance products under the Non-Linked Non-Par platform should not exceed Rs 6,000.

• - Microinsurance schemes must be marketed to groups with a minimum group size of 5.

• - Insurers are prohibited from offering Microinsurance products under the unit-linked platform.

What Are the Benefits of Microinsurance?

The Microinsurance program aims to cater to the needs of underprivileged and low-income individuals, offering several advantages:

1. Simplified Structure:

Microinsurance policies have a straightforward and uncomplicated structure. They avoid using lengthy and complex policy documents. Administrative procedures and processes are simplified and easy to understand. In contrast, regular non-Microinsurance policies often involve extensive paperwork and contain intricate terms and conditions.

2. Affordability:

Microinsurance premiums are highly affordable, although they may vary based on the coverage amount and insurance type. Moreover, Microinsurance premiums are usually paid only once during the insurance period due to their affordability. In Microinsurance, the premium and coverage amounts are relatively fixed for each insured person, while non-Microinsurance premiums and coverage depend on individual capabilities and demands.

3. Ease of Access:

Microinsurance is designed to be easily accessible. Claim settlements can be made at various locations, such as mini markets, post offices, kiosks, village head offices, and community centres, either individually or in groups. In contrast, non-Microinsurance claims are typically processed through insurance branches with the involvement of agents or brokers. Furthermore, Microinsurance policies generally do not require a health check-up before enrolment, unlike other insurance types.

4. Quick Processing And Disbursement of Funds:

Microinsurance applications are processed swiftly, with prompt responses from the insurance company. When it comes to claim settlements, funds can be received within a maximum of 10 days after submitting the necessary documents. This is particularly beneficial for low-income individuals in India who often lack substantial savings and require immediate financial assistance in the event of natural disasters. Whereas General Insurance claims typically take 30 days for acceptance.

How to Buy the Right Microinsurance Policy for You?

Choosing the right Microinsurance Policy amidst the numerous options offered by companies and organisations in India can be a daunting task. To help you make an informed decision, consider the following points:

1. Define Your Insurance Goals: Determine the purpose, terms and conditions, maturity date, premium amount, and benefits of the Microinsurance policy. Assess your needs, whether it is financial freedom after retirement or protection against accidents and natural calamities, to select the most suitable plan. It is advisable to seek recommendations from industry experts for guidance.

2. Assess Insurance Coverage: Carefully estimate your yearly income and expenses, considering how much you can afford to invest in insurance premiums. Conduct thorough research and analysis to understand different Microinsurance policies and their benefits. Ensure that the chosen policy aligns with your financial capabilities and requirements.

3. Choose a Reliable Insurance Provider: Explore the market for reputable insurance companies that offer suitable policies. Scrutinise their offers, terms and conditions, insurance amounts, benefits, tenure, and customer feedback. Verify essential details like company establishment date, regulatory authorities' licenses, service history, and reputation. This will help you identify a reliable service provider and select the best Microinsurance policy.

4. Read the Policy Document: Carefully read and understand all the terms and conditions mentioned in the policy document. Take the time to go through the insurance papers, which outline the specifics of the Microinsurance policy. Seek assistance from an insurance advisor if you encounter difficulties comprehending any aspect. Vigilance and thorough understanding prevent any misunderstandings and ensure you choose the right policy.

5. Evaluate Life Insurance Needs: Periodically assess and adjust your Microinsurance needs based on significant life events such as marriage, childbirth, or the death of a relative. Ensure that the chosen policy remains relevant and provides sufficient coverage during unexpected emergencies.

6. Start Early: Consider the factors of age, occupation, income, and insurance scheme amount. Unfortunate incidents can happen at any time, and having insurance coverage provides financial security. Taking Microinsurance at an early age allows you to benefit from lower premiums and longer coverage duration. Cheap health insurance options are available for individuals across different age groups.

7. Consider the Number of Insured Individuals: Discuss your requirements with an insurance advisor and provide details about the number of individuals who need coverage. This information will impact the insurance amount, premium instalments, terms, and conditions. The advisor can help find the best Microinsurance policy that suits your specific needs.

Conclusion:

The significance of obtaining insurance policies is widely recognised. Opting for the appropriate insurance policy ensures financial assistance during challenging circumstances. However, despite India's progress, a considerable number of individuals still face challenges in acquiring conventional life insurance policies. In such cases, Microinsurance becomes a blessing. Microinsurance requires minimal resources to be obtained and premiums to be paid, making it accessible to a wider population.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.