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Microinsurance Products

Different microinsurance products can help low-income households manage different risks. This section includes articles and documents on different microinsurance products as categorised below.

  • Life Insurance
    Life Insurance covers the policy holder and his/her family on the event of death and disability. It is an important measure of financial security for low-income households and the insurance product currently most widely available. Life insurance is a relatively low-risk product for the provider.

  • Health Insurance
    Health insurance covers health care related costs linked to illness, injury and medical treatment. Health policies offer many different options and combinations. Insuring health risks is a complex task and highly dependent on access to the existent health care infrastructure.

  • Agriculture Insurance
    Insurance products for agriculture can be categorised as livestock insurance, crop insurance, weather insurance. Agricultural insurance aims to reduce the vulnerability of low-income households faced by natural disasters like drought, flood or livestock affecting epidemics.

  • Livestock Insurance
    Livestock insurance is an agricultural insurance and covers against loss of livestock owned by the policy holder(s). Most livestock insurance schemes insure against a specific peril and can be paid out in the form of a lump sum payment or livestock replacement.

  • Crop Insurance
    Crop insurance is an agricultural insurance product and covers crops against perils such as hail or fire. Index instruments are often used for crop insurance to avoid moral hazard risks and is not connected to one particular crop, but is based on the measurable occurrence of a specific peril.

  • Weather Insurance
    Weather or climate Insurance is an agricultural insurance product and like crop insurance, often linked to index insurance. A key issue, for example, with weather index insurance is to have a strong correlation between the index (the rainfall) and the output expected (the harvest).

  • Property and Asset Insurance
    Property and asset insurance covers against damage of property and damage and/or loss of assets in the event of the covered perils. Deposit insurance, addressing the risk of bank or MFI solvency problems as a type of asset insurance, is especially important for low-income households.

  • Other Insurance Products
    Microinsurance includes many specific products that are adapted to the needs and demands of low-income households and cover specific risks.

Life Insurance

Life insurance pays benefits to designated beneficiaries upon the death of the insured. There are three broad types of life insurance coverage: term, whole-life, and endowment.

TERM LIFE INSURANCE policies provide a set amount of insurance coverage over a specified period of time, such as one, five, ten, or twenty years. This insurance is appropriate when the policyholder's need for coverage is temporary. Compared with other life insurance policies this is not very complicated for the provider to offer. This is the most widely used life insurance policy in low-income communities in developing countries.

WHOLE LIFE INSURANCE is a cash-value policy that provides lifetime protection. This is hardly offered in low-income markets in the developing countries.

ENDOWMENT LIFE INSURANCE pays the face value of insurance if the policyholder dies within a specified period. It thus has a longer time horizon that the term life insurance. This is also not offered widely in developing countries.

Source: Adapted from Principles of Risk Management and Insurance by George Rejda (July 2002)

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Health Insurance

Health insurance provides coverage for illness and accidents resulting in physical injuries. MFIs have realized that expenditures related to health problems have been a significant cause of defaults and people's inability to continue improving their economic conditions. Several MFIs have therefore, either started their own health insurance programs or have linked their clients to existing programs. While actual coverage varies, many health insurance providers cover for limited hospitalization benefits for certain illnesses, and for costs of physician visits and medicine. Some insurance providers also make available primary health care services such as immunization and contraceptives.


The difficulties involved in the provision of health insurance become clear when one considers the varieties of health insurance. The principal types of benefits can be classified as follows:

Comprehensive indemnity cover, which indemnifies both the expenses associated with both high-frequency low-cost events like visits to the doctor, as well as less frequent high-cost events like hospitalization. A sub-category of this cover is major expense indemnity cover, which indemnifies against only the less frequent, high-cost events that are more random.

Health savings accounts, which provide a saving and budgeting facility suitable for the low level, uninsurable costs, but with no insurance element. Although not an insurance product, health savings accounts are sometimes linked together with other types of health insurance to create a more comprehensive package.

Critical illness or dread disease cover which pays a fixed amount (often a percentage of a defined sum insured) on the diagnosis of significant conditions like cancer or major heart disease, both as compensation for pain and suffering and also to fund changes in lifestyle or other expenses.

Defined benefit major medical cover, which pays a fixed amount (again often a percentage of a sum insured) on undergoing specific defined procedures such as appendectomy or the amputation of a limb.

Source: The Landscape of Microinsurance in the World's 100 Poorest Countries by The MicroInsurance Centre (April 2007)


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Agricultural Insurance

A large majority of poor households in the world are directly linked to agriculture in some fashion. Risks in agriculture are correlated. When one household suffers bad fortune it is likely that many others in the region are also suffering: When agricultural commodity prices decline everyone faces a lower price, and when there is a natural disaster that destroys either crops or livestock, many people suffer. Insurance markets are sorely lacking in most developing and emerging economies, and rarely do local insurance markets emerge to address correlated risk problems.

Source: Risk Management Challenges in Rural Financial Markets

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Livestock Insurance

Insurance is a logical complement to on-going pastoral risk management activities, as it has the potential to protect herders against unavoidable livestock loss. Livestock may complement or replace the need for Government re-stocking programs. Although insurance is recognized as a key element of risk mitigation, the conventional approach to livestock insurance (based on individual losses) has been found to be ineffective in some specific conditions. Innovative insurance pilot projects are nevertheless being tested.

Source: Piloting Index-Based Livestock Insurance in Mongolia

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Crop Insurance

Crop insurance typically provides policy holders protection in the event their crops are destroyed by natural calamities such as floods or droughts. The experience with crop insurance in developing countries and even in the developed economies has had mixed results.

To improve the ability of rural farmers to repay loans from agricultural development banks (ADBs), many governments developed crop insurance programs in the 1970s and 1980s. These programs typically provided loan repayment and occasionally income supplements to farmers suffering crop yields below an established minimum. Similar programs were developed in countries as diverse as Brazil, India, the Philippines and the USA. In each country the results were disastrous, with expenses (administrative and claims) far outstripping revenues. Reasons for the failure of crop insurance have included: Bad program design (such as failure to bring into account the incentives faced by the policy holders), covariant risks typical of rain-fed agriculture systems dependent on only one or two crops, and in some cases unanticipated catastrophic natural calamities.

Source: Insurance provision in low-income communities: Part 2: Initial lessons from micro-insurance experiments for the poor (May 2000)

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Weather Insurance

Weather index insurance (...) is a promising means of overcoming moral hazard and fraud by linking insurance benefits to an objective index like rainfall. Over the last several years, the World Bank has worked with a range of partners in pilot projects in several countries. Initial results have been mixed, although some of the programs seem promising both in demand and sustainability.

Weather index insurance is closer to a derivative than to traditional insurance. Typically, the farmer is free to purchase as much cover as he or she wishes, and when the index is calculated at the end of the year, the payment received is a function of the amount of cover purchased rather the actual loss suffered. This makes claims payment very easy, as it does not require any claims validation beyond ensuring that the measurement of the index is correct. In effect, farmers do not need even to submit claims. At the end of the term, if the trigger has been met or exceeded they receive a payment.These characteristics make weather index insurance an ideal product to be sold by MFIs.

Source: The Landscape of Microinsurance in the World's 100 Poorest Countries by The MicroInsurance Centre (April 2007)

  • Insuring Against Bad Weather; Recent Thinking
    This article focuses on providing the basic motivation for innovation in insurance against adverse weather events. Institutional developments on risk sharing must accompany market developments that involve both the broader financial community as well as the global community to effectively supply needed products.
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Property and Asset Insurance

Property insurance provides coverage against loss or damage of assets. Providing such insurance is difficult because of the need to verify the extent of damage and determine whether loss has actually occurred. It is difficult for most MFIs to guard against such moral hazard. A few, however, do provide such coverage. SEWA in India, for example, provides insurance against damage to home and productive assets. Grameen Bank in Bangladesh offers its clients insurance against the death of livestock and COLUMNA in Guatemala provides insurance against fire damage.

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Other Insurance Products

Microinsurance includes many specific products that are adapted to the needs and demands of low-income households and cover specific risks. Some of these specific products are based on a cultural demand for a type of risk coverage like for example funeral insurance.

FUNERAL INSURANCE allows the insured to cope with the high costs of funerals UNEMPLOYMENT INSURANCE provides cover in case of an eventual unemployment DISABILIY INSURANCE protects the policyholder and his/her family in case of disability

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