According to the classical insurance scheme, companies seek to sell large insurance programs to the client that include entire risk groups and coverage on which most likely will not be needed.
Microinsurance is a more flexible system. It allows a client choose the set of risks relevant to him, and pay the insurance premium regularly. The premium is based on probability of risk occurrence and their coverage cost.
Microinsurance appeared in the non-profit sector; in the West, such small and cheap insurance policies were received by people who could not afford standard insurance programs. However, these people are in a high risk (economic, physical, etc.) area. Therefore, insurance is especially important for them. Charity organizations were the first to issue micro-policies. They were funded through the income, charity and subsidies.
Microinsurance implies insurance coverage against specific risks (rather than risk groups) in exchange for small regular payments; its main features are low cost, underwriting simplicity, understandability and accessibility of contracts, payments, issue of policies and resolution of disputes.
Microinsurance policies for those who earn less than $4 a day are used as a tool to improve the quality of life in countries with adverse economies.
Dan Ariely, a behavioral psychologist (and chief behavioral economist at Qapital), believes that microsaving will not be an alternative to saving money in more traditional ways, but thanks to small investments and gains, people may have motivation to save money on a larger scale. “Beyond that, microinsurance has the potential to create a sense of stability,” said Dr. Ariely.
Of course, saving fifty dollars a month will not be able to significantly affect retirement, but this tool is good for young people, because one should start somewhere.
Source: https://www.nytimes.com/2020/02/03/smarter-living/wirecutter/microsaving-savings-apps.html
Photos are from open sources.
