Aam Aadmi Bima Yojana

In a country where millions of workers are part of the unorganized sector, financial security often feels like a distant dream. But what if there was a simple, affordable solution designed to safeguard them from the unexpected? Enter the Aam Aadmi Bima Yojana (AABY), a government-backed insurance scheme providing crucial life and disability coverage to the most vulnerable segments of society.

In this blog, we cover:

• An overview of the AABY scheme
• Key features and benefits of the program
• Inclusions and exclusions under the policy
• It’s convergence into PMJJBY and PMSBY

What is Aam Aadmi Bima Yojana?

The Aam Aadmi Bima Yojana was a government-backed insurance scheme designed to provide life and disability coverage to individuals in the unorganized sector. This included workers in agriculture, construction, and other sectors where workers typically do not have access to social security or financial protection.

Launched in 2007 by the Ministry of Labour & Employment, the scheme aimed to extend affordable coverage to the most vulnerable sections of society. Through AABY, individuals were protected against the financial burden caused by death or disability, with a minimal premium that the government often subsidized.

Having converged into PMJJBY and PMSBY, new enrollments under the old AABY ceased. Beneficiaries aged 18-50 were transferred to PMJJBY/PMSBY, while a closed group aged 51-59 continued on legacy terms. States could also choose to cover them under PMSBY by paying ₹12/year.

What are the Key Features of the Aam Aadmi Bima Yojana?

The AABY offered a range of benefits to ensure that insured persons were well-protected in the event of an unfortunate occurrence. Some of the key features include:

1) Life Insurance Coverage

On natural death, the sum assured was ₹30,000 (excluding accidental death, which had a benefit of ₹75,000).

2) Disability Coverage

In the event of permanent disability resulting from an accident, the insured was eligible for compensation.

• Partial permanent disability (loss of one eye or one limb) got ₹37,500.
• Total permanent disability (loss of two eyes / two limbs/loss of one eye + one limb) got ₹75,000.

3) Scholarships

Two children of the beneficiary studying between 9th and 12th Standard could receive ₹100 per month (for each child, half-yearly: on 1st July and 1st January, each year).

4) Premium

The premium for the scheme was Rs. 200 per annum, which the government heavily subsidized. Half of this was contributed by the Social Security Fund (i.e., central subsidy), and the other half by the state government/ nodal agency/ individual, depending on the context.

Note:

• However, on some state-level scheme pages, the premium is still listed as Rs. 200, with a 50% subsidy. For example, Maharashtra’s site says the premium is Rs. 200 per annum.
• There is at least one state (Andhra Pradesh) page that says the premium increased to Rs. 320 in that state under certain conditions. For example: Andhra Pradesh
• After convergence, the combined PMJJBY+PMSBY premium came to ₹342/year (₹330 + ₹12). The extra ₹142 is split 50% by the Centre (from the Social Security Fund and 50% by the State/Nodal Agency. For people above 50, if states want them in PMSBY, they pay the full ₹12.

This made AABY an accessible option for individuals in the unorganized sector who may not have had access to other forms of insurance.

What Are the Benefits Under PMJJBY?

The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) offers a range of essential benefits designed to provide financial security to individuals in the event of an unfortunate death. Here are the key advantages:

1) Low Premium

The scheme offers comprehensive life coverage at an affordable annual premium of just ₹330, making it accessible for a wide demographic, particularly those from lower-income groups.

2) Death Benefit

In case of the policyholder's death, the nominee receives a lump sum amount of ₹2 lakh, ensuring financial stability for the family.

3) Wide Eligibility

Available to all Indian citizens aged between 18 and 50 years with a bank account, the scheme ensures that millions of people can secure their future.

4) Renewable Coverage

The policy is renewable annually, providing long-term coverage as long as the premium is paid and the policyholder continues to meet the eligibility criteria.

5) Easy Enrollment

Enrollment is simple and can be completed through participating banks, making it easy for individuals to join the scheme and access its benefits.

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What are the benefits under PMSBY?

The Pradhan Mantri Suraksha Bima Yojana (PMSBY) provides affordable and comprehensive accident insurance coverage to safeguard individuals from the financial burden caused by accidents. Here are the key benefits under this scheme:

1) Accidental Death Benefit

In the unfortunate event of the policyholder’s death due to an accident, the nominee is entitled to a compensation of ₹2 lakh. This ensures that families receive financial support during times of crisis.

2) Permanent Disability Benefit

If the policyholder faces permanent disability due to an accident, a sum of ₹2 lakh is provided to help cover medical expenses and loss of income.

3) Partial Disability Benefit

For temporary or partial disability resulting from an accident, the policyholder receives ₹1 lakh to assist with recovery and rehabilitation costs.

4) Affordable Premium

The scheme charges an annual premium of only ₹12, making it incredibly affordable for individuals across all economic strata, especially for those in rural and underprivileged communities.

5) Wide Eligibility

The scheme is available to all Indian citizens aged between 18 and 70 years with a bank account, enabling a broad segment of the population to access crucial accident insurance.

6) Easy Enrollment

Enrollment is simple and can be completed through participating banks, offering hassle-free access to protection for individuals nationwide.

What are the eligibility criteria for AABY?

The eligibility for AABY was relatively straightforward. To register for the scheme, you needed to meet the following conditions:

1) Age Limit

Applicants must be between 18 and 59 years old.

2) Occupation

The scheme is primarily aimed at people belonging to 48 identified vocational/occupational groups / rural landless households / unorganized workers. All eligible unorganised workers may be covered in these converged schemes. The definition of unorganised workers is as defined in the Unorganised Workers' Social Security Act, 2008.

3) Income

While there was no strict income requirement, the scheme targeted low-income households that lacked access to formal social security benefits.

What are the key inclusions and exclusions of the Aam Aadmi Bima Yojana?

The scheme had both inclusions and exclusions, which defined the scope of coverage.

1) Key Inclusions:

• Accidental death and permanent disability caused by an accident.
• Natural death (subject to the age limit).

2) Key Exclusions:

• Death due to suicide is not covered under the scheme.
• Death or disability caused by alcohol consumption or drug abuse.
• War-related deaths are also excluded from the coverage.

Understanding these standard inclusions and exclusions helps in managing expectations from the scheme.

Ditto’s Take on Aam Aadmi Bima Yojana

The Aam Aadmi Bima Yojana (AABY) was a commendable initiative that aimed to provide life and disability coverage to low-income workers in India’s unorganized sector. It was an affordable and accessible option for workers in industries that often lack financial security. 

That said, while the scheme was a great starting point, it had limitations in terms of coverage. The ₹30,000 sum assured for natural death was often insufficient for families that depend on a primary breadwinner, and the disability benefits offered were modest. The absence of coverage for critical illnesses and hospitalization meant that AABY couldn’t offer complete financial protection.

The convergence of AABY into PMSBY and PMJJBY in 2017 created a broader framework for protection. However, it’s essential to note that while these schemes have enhanced coverage, they may still not fully meet the needs of workers with significant financial responsibilities.

When compared to private term plans, AABY/PMSBY/PMJJBY still falls short. Private plans offer significantly higher coverage, from ₹10-25 lakhs, as well as options for premium waiver, disability benefit, and critical illness coverage. They’re not as affordable, but for families with dependents or long-term financial commitments, a personal insurance plan is an important consideration.

For example, Saral Jeevan Bima is an IRDAI-standardised product available for a sum assured of less than ₹25 lakhs, while private term plans offer a sum assured of ₹25 lakhs and above.

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Conclusion

While the AABY/PMSBY/PMJJBY schemes have made strides toward offering broader coverage, they’re best seen as a starting point. To ensure comprehensive financial security for dependents, supplementing these schemes with a private term insurance plan can provide the robust protection that many families need. Ditto can help you choose the correct term insurance policy that meets your specific needs, providing peace of mind in the event of the unexpected.

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