Is Insurance Practical for the Poor?
The question of the applicability of insurance to the poor is an ongoing debate which has continuously raised concerns for people who barely fend for themselves. One would ask how would someone who can barely meet his daily needs, be invited to come embark on an insurance scheme. Many are of the view that insurance is restricted to the wealthy; it is conceived as one of the several practices carried out by the wealthy and privileged. Contrary to this belief, however, is the fact that every individual, whether rich or poor is exposed to risk. The essence of insurance is to help mitigate the effect of risk, and this will not be achieved if it cannot be enjoyed by or beneficial to the poor.
Insurance is a macro economy factor which applies to individuals, businesses and the economy and is as important to the rich as it is to the poor. The determination of sum insured and premium is dependable on the value of subject matter being insured therefore premium is not fixed. The payment of premium is for the purpose of pooling resources together from people with the same risk for them to share each other’s risk indirectly. The pooling of resources together reduces the burden on the individual to the group thereby reducing the premium price in the first place.
The major bone of contention here, however, is whether or not a poor man would want to give out a percentage of his income for insurance. Many would query ‘’is it really worth it?” “Can I continue paying the premium?” The answer the individual gives to these answers determines the action he takes concerning insurance. The individual may decide to retain his risk instead of transfer it to an insurance company. For instance, one may choose to start contributing a particular amount of money to reduce the effect of a theft of car if the exposure to risk is high instead of transferring the risk to another party. While some others may not even consider any risk management mechanism and just simply hope that loss is kept at bay.
Individual risk behaviour is a predominant factor that needs to be considered in analysing the practicality of insurance to the poor. A person can either be a Risk Averter or a Risk Taker, and this is what determines whether the person would consider insurance worthwhile or not. The value we place we place on our property or future determines how much risk we can take for it. For instance, an individual can risk paying a premium of 2,000 naira for life assurance policy even if he earns a sum of 10,000 naira only because he values the future of his family if the risk of his death is high.
However, what is valuable to a rich man is not practically valuable to a poor man and vice versa. For this reason, the concept of micro insurance has been put in place to benefit low-income earners and thus make insurance available to everyone in the society. It can be a generic micro insurance product or life microinsurance product. Micro insurance is a financial arrangement to protect low-income people against risk in exchange for a regular premium. This scheme links multiple small units into larger structure to enhance both insurance function (pooling of risk) and Support structure function (training, data banks, research facilities, etc).
A wide of variety of micro insurable products exist as it addresses the following risks: Crop Insurance, Livestock Insurance, Theft or Fire insurance, Health insurance, Term life insurance, Death Insurance, Disability Insurance and Insurance for a natural disaster.
In the final analysis of the subject matter, when proper consideration is given to the benefits of insurance to both the rich and the poor, it is incredible to realise that it is the poor that needs insurance most. Insurance promises that what one has at all, one should have for life. That proposition and promise will be valued by the poor man better. The rich can always have the money to replace whatever they lose, but the man who does not have too much must hold unto what he has dearly. This is the practicality of the situation. Therefore, rather than see insurance as a separate cost, it is okay to factor it into the real cost, for what one has not insured, one cannot really say that one has.