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How can microinsurance help?

How can microinsurance help when the poor get sick, have an accident, or lose income due to the bread winner”Ēs death?

Borrowing money from relatives, friends and families is one way for the poor in developing countries to manage to pay for unexpected expenses such as medical costs and make up for income shortages. However, this traditional scheme of mutual assistance among the poor does not always work because everyone around them is also poor in the first place and furthermore, when people in the community are affected by natural disasters or infectious diseases simultaneously, they are less likely to be able to help others.

Then the poor usually turn to money lenders in the community but the hefty burden of the high interest rates they charge could result in additional lending, thus leading the poor into a spiral of poverty. Meanwhile, with a very small premium, microinsurance can provide financial protection against various risks such as losing jobs, losing properties, getting sick, becoming disabled, etc. The certainty microinsurance can provide to the poor is its most differentiated and important characteristic compared with traditional mutual assistance activities in the community.

Microinsurance can surely reduce the financial costs levied by various unexpected events on the poor.