MILK Brief #20 Doing the Math – Loan Protection Insurance in Cambodia

Can credit life microinsurance provide value to clients?  In its latest Client Math study, MILK partnered with the Cambodian microinsurance provider MEADA to explore the value of a life microinsurance product that combines loan protection with a small cash payout in the even of a microcredit borrower's death. We interviewed family members of recently-deceased individual, some of whom were covered by insurance and some of whom were not, to better understand the costs they faced and how they covered those costs (including the role the insurance played).

We find that while the loan protection component of the product provided value to insurance beneficiaries by reducing their obligation to pay back the deceased's debt. In many cases, however, it fell short of eliminating the entire debt burden as loans from multiple sources were common. The product also pays a cash refund of the portion of the loan that the borrower had repaid at the time of death. This cash refund was on average too small to provide meaningful financial value, but its tangibility worked to enhance perceived value among clients. Although MEADA’s take-up is very high and its payout is fast, it is not clear whether this service value outweighs the still low limited value that the product provides. Thus, we feel that MEADA is poised to expand the benefits (in amount, form and/or duration) to better match the costs faced by low income people after a family member's death.