Micro insurance is a risk protection against specific perils like death, illness, weather catastrophes, etc. designed specifically for low-income households. It can function as a critical tool to eradicate poverty and serve as a channel for the financial sector to reach low-income groups. It is a risk transfer mechanism characterized by low premiums and low coverage limits, designed for low-income people not served by typical social or commercial insurance schemes. It contributes to economic and social inclusion, especially for rural households and women, addressing the multi-dimensionality of poverty. Hence, micro insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved (Churchill, 2006).
The insurance business (measured in terms of first year premium) registered an impressive growth of 94.96% in 2006-07, surpassing the growth of 47.94% achieved in 2005-06. This has resulted in increasing insurance penetration in the country. Insurance penetration or premium volume as a ratio of GDP, for the year 2006 stood at 4.10% for life insurance and 0.60% for non-life insurance. According to India Invest Incomes and Savings Survey 2007 by IIMS Dataworks, a Noida-based retail finance research firm, 58% of India's 105.4 million insured people (out of a total of 321 million people who constitute the country's paid workforce) are from the rural areas.
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