What is a micro-insurance policy?

Insurance Regulatory and Development Authority (IRDA), the body regulating the functioning of insurance industry in India, in order to promote insurance among economically weaker or vulnerable sections of the society has introduced a special class of insurance policy termed as micro-insurance. Micro-insurance is defined under the IRDA (Micro-insurance) Regulations, 2005.

Generally speaking, micro-insurance policies include both life as well as general insurance policies that have a cover or sum assured value of Rs. 50,000 or less. With flexible regulations, insurers are also allowed to provide packaged products including both general and life insurance cover.

Within the category, term plan, endowment/saving plan, health cover, personal accidental cover and property cover among others are available.

Intermediaries in the micro-insurance business

Currently, the penetration of insurance cover to the bottom of the pyramid via micro-insurance policies is being undertaken by the following intermediaries that include microfinance institutions (MFIs), non-government organsations (NGOs) and self-help groups (SHGs).

New norms proposed for micro-insurance

Only lately, in respect of the micro-insurance plans, IRDA has issued a set of proposals and based on the recommendations, final regulations shall be drafted. As per the draft, surrender of the micro insurance policy plan shall not be allowed. Nonetheless, partial withdrawals can be made from the second policy year when a minimum balance of an amount equal to one annual premium is maintained against the policy.

Further, to strengthen the distribution network for micro-insurance policies, the draft norms also proposed distribution of such special policy plans (that would eventually aid in financial inclusion) by regional rural banks, district cooperative banks, self-help groups, banking correspondents, micro-finance institutions, non-governmental organisations, urban cooperative banks and local kirana stores, fuel stations and fair price shops in rural areas.

In case of the micro variable life insurance products, a minimum lock-in of 5 years from the policy commencement date has been proposed with provision of partial withdrawals.

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