Insurance involves pooling risk over a large number of similar units, such as households, persons or businesses. Some very important risk management strategies are occasionally called insurance, but in fact they are not. A targeted savings product for marriage or a dowry, for example, is a savings product, not an insurance product. Second, from the client's perspective, for many risks, insurance is not the ideal solution. If clients can save enough money to protect themselves from economic shocks, then this is usually the most cost-effective approach.
Insurance is most appropriate for uncertain and expensive losses.
Insurance involves exchanging the uncertain prospect of large losses for the certainty of small, regular premium payments. The third point is that insurance products range from fairly straightforward to very complex. Prospective micro-insurers should consider enlisting the input and even participation of insurance experts, especially if they intend to offer something more complicated than insurance for the outstanding balance of a loan.