What is Micro Insurance: Definition, Types, Importance and Benefits

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.

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.

1. Life Micro Insurance

2. General 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.

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.