Aam Aadmi Bima Yojana Case Study

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Aam Aadmi Bima Yojana (AABY) is a life insurance scheme also largely for the below poverty line population and aims at the unorganised sector. The most current version of the scheme was launched in January 2013 by merging two previous life insurance schemes – Janashree Bima Yojana (JBY) covering 45 occupational groups and – Aam Aadmi Bima Yojana (AABY) covering solely poor landless households in rural areas. The merging of these two schemes, allows for a more extensive and uniform process, thereby covering the entire unorganised sector encompassing households that are either BPL or marginally APL.
Challenges: The specific challenges in the design of the AABY scheme are related to its price, extent of coverage offered, and eligibility age for coverage. Analysis reveals that: (i) the extent of coverage provided by AABY does not provide adequate cover for even a 50 year old in the lowest income quintile; (ii) The current price of the AABY product is much higher than extant term life insurance policies in the Indian market; (iii) It is estimated that AABY premiums are more than 160% of the market price. Therefore, the extent of cover provided for the current premium of Rs. 200 should be higher than Rs. 30,000; (iv) AABY offers life insurance cover for
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(i) The current NPS-S investment mix should be changed to the life cycle fund mix, where the risk profile of asset allocation changes with age; (ii) NPS-S should offer capital guarantee to beneficiaries; (iii) Reduce Subscriber Minimum Pension Contribution, and Provide Unconditional Cash Transfer of Rs. 1000 per Month for the Elderly Poor; (iv) The minimum contribution for NPS-S should be reduced to Rs. 500. This will allow more subscribers to participate in the scheme and thus increase

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