What is microinsurance?

ABS-CBN News

Posted at Jan 24 2017 12:26 PM

MANILA - January is National Microinsurance Month. For many of us, this may be a new term, considering that microfinance is relatively young in the Philippines, with the government regulating the sector only in 2009, as it recognized its impact on people’s lives.

What, exactly, is microinsurance? Microinsurance is very much like your usual insurance product, except that it is geared towards low-income households and people who do not have access to the financial markets. Think of it as tidbit-sized insurance with premiums that are well within the minimum wage worker’s reach.

Under the law, premiums cannot go higher than 7 percent of the current daily minimum wage. This is to ensure that these policies are affordable to most people. At the same time, the rate and its benefits could amount to no more than 500 times the daily minimum wage. That means that for a minimum wage of P500, the maximum coverage is P250,000. Microinsurance comes with a 45-day allowance, unlike the usual 30-day allowance for regular insurance.

Over the past few years, the microinsurance industry has grown in leaps and bounds in the Philippines, which has one of the most advanced microinsurance markets in the world. Individual insurance providers have disclosed plans to offer micro pre-need products, such as education and pension insurance, in the future.

According to the Insurance Commission, almost 3 out of 10 Filipinos are covered by micro-insurance as of 2015. The government foresees microinsurance uptake reaching 50 million in the next two to three years, covering nearly half of the Philippine population.

Easy to apply for and easy to access, no wonder its popularity has grown by leaps and bounds. No doubt, microinsurance is a tool that helps promote financial inclusion, by providing tailored services that have been especially designed to address clients’ needs.

Here’s a rundown of the most common microinsurance products available today. Newer ones are expected to be introduced in the market as regulations are finalized by the government:

· Life insurance. A typical microlife insurance product would start with a coverage of P5,000, with a premium payment of about P40 pesos, covering a period of less than six months. You could go for a coverage of as much as P250,000 under microinsurance.

· Accident insurance. A typical plan could start with a coverage of P20,000, with premiums starting at less than P100.

· Property insurance. Coverage for disaster-related losses to your home could go from P100,000 to P200,000, with premiums at around P100 for a year of coverage.

· Personal property insurance for small businesses. This can include protection against damage to property, as well as losses from burglary and robbery. Typical coverage is P100,000 with premiums of around P1,500-P2,000.

Microinsurance plans are designed to be straightforward, making it easy for plan holders to understand how to use these. Documentary requirements are also minimal and easy to comply with. Restrictions are minimal. It is almost always paid for in cash, but it can also be paid through other ways such as through mobile payments, as well as salary deductions.

Depending on the specific product you need, you can purchase these microinsurance products from retail stores, banks, convenience shops, schools, pawnshops, and local government units.

Should you need to file a claim, most providers offer 24/7 support using various communication channels. To make it easy to pay and easy for providers to manage, microinsurance is usually prepaid. This makes it convenient on the part of the plan holders as well, eliminating the need to come up with funds to make future payments and keep the plan active.

If you don’t have insurance and are interested in getting one, this could be the best way to be introduced to this practice. Make sure to get quotations from more than one insurance provider so you can compare their claims and benefits.

Also, choose a plan that best suits your lifestyle and your needs (do you need an accident insurance more than a property insurance?). Since microinsurance is only effective for a short duration you can opt to get regular insurance once you have the means to pay for higher premiums.

The earlier you start the better, because you never know when you’ll need it.

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Grow Your Money is an editorial partnership between news.abs-cbn.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.

Visit www.citibank.com.ph for more information.