Types of Micro Insurance
Poor households typically do not have access to formal insurance and protection against the risk of severe illness, the death of a breadwinner, loss of housing or livestock and other similar assets. Poor families are more susceptible to the damaging consequences of these, and similar, vulnerabilities. Micro insurance is a relatively new product, which extends low insurance coverage with low premiums to low-income families.
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Life Micro Insurance
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Life micro insurance is available to individuals between the ages of 18 and 72. It provides coverage against death (accidental and natural). Beneficiaries receive compensation upon the death of the policyholder, who is typically the primary breadwinner. The two types of life micro insurance are term life insurance and endowment life insurance.
Term life insurance provides temporary coverage on a fixed budget for a limited period of time. It is also called term assurance. A policyholder must renew its term, or obtain further coverage at different rates and/or conditions. Endowment life insurance provides coverage for a fixed period of time. A policyholder can redeem it at its face value if he or she is alive at the end of the endowment term.
Personal Accident Insurance
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Personal accident micro insurance extends protection against permanent disability or accidental death in the form of the loss of eyes, limbs or both. Compensation terms and amounts vary, depending on the extent and type of disability.
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Asset Insurance
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Asset micro insurance protects against loss of, or damage to, occupational or household assets. Low-income households typically need to insure inventory, equipment and tools, homes, livestock and personal items. Asset insurance covers damage caused by civil disturbances, riots, fire, earthquakes, hurricanes, cyclones and similar disasters. A policyholder is entitled to the amount of loss or damage, or the face value of the policy itself. According to Samita Mishra and Kailash Chandra Mishra in the book “The Game Is Changing: Insurance Reloaded,” asset micro insurance is typically tricky to evaluate and insurers are advised to carefully scrutinize and evaluate claims.
Health and Disability Micro Insurance
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Health micro insurance offers coverage against the cost of medicine and hospitalization, up to a certain amount as specified in the insurance contract. All costs incurred may be paid directly to the healthcare provider or reimbursed directly to the policyholder.
Disability micro insurance is an extension of health micro insurance, extending coverage to a policyholder in times of severe sickness. The two main types of disability micro insurance are temporary and permanent. Temporary disability micro insurance offers partial compensation for the loss of income during the months a policyholder is unable to work due to illness. Permanent micro insurance offers complete income replacement coverage to a policyholder.
According to Craig Churchill in the book “Protecting the Poor,” health micro insurance products are predominant in Africa, the Philippines, India and Nepal.
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References
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