Microinsurance And Its Benefits
Definition and Coverage
Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved. The target population typically consists of persons ignored by mainstream commercial and social insurance schemes, as well as persons who have not previously had access to appropriate insurance products. It can also be defined as insurance, which is appropriate for the low-income earners in respect to cost, terms and conditions, coverage and delivery mechanisms. At the core of the micro-insurance concept is the inclusion of low income earners.
This implies that micro-insurance products are primarily designed for low income earners (though anyone else including high net individuals can buy such products), in a viable manner and on the basis of generally acceptable insurance principles. Microinsurance, like regular insurance, may be offered for a wide variety of risks. These include both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of microinsurance products exist to address these risks, including crop insurance, livestock/cattle insurance, theft or fire insurance, health insurance, term life insurance, death insurance, disability insurance and insurance for natural disasters.
Uses and Benefits of Microinsurance
Low-income households are vulnerable to risks and economic shocks, as such one way they can protect themselves is through insurance. Micro-insurance can be used as a poverty alleviation strategy that assists low income households manage risk by providing them with a sense of financial confidence in the face of significant vulnerabilities such as death, injury and illness, loss of property, effects of drought and other contingent events.
Microinsurance provides a critical safety net, preventing households from falling into poverty by avoiding the damaging costs of emergencies. It helps low-income people avoiding difficult, often devastating risk coping measures such as putting children to work, eating less food, or selling productive assets. But microinsurance can deliver many other benefits to low-income households, even in the absence of a shock.
For Insurers, by reaching many individuals who were formerly excluded from insurance, and thereby reducing the vulnerability of low-income individuals and protecting their income streams, microinsurance helps to improve social stability and supports broad-based economic development. It also creates an opportunity for insurers to tap into new markets and build a strong brand value that can be used for selling conventional insurance products in the future. It is a win-win situation: insurers help those who urgently need access to insurance. This, in turn, supports the long-term economic goals of insurers.
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