Microinsurance is a mechanism to protect low-income households against risks, such as illness, a death in the family, or crop failure. The costs and benefits of this kind of insurance are specifically adapted to suit the needs and incomes of low-income households. Microinsurance is particularly important for those in the informal economy who tend to be underserved by mainstream commercial and social insurance schemes.

Microinsurance provides a critical safety net, preventing households from falling into poverty by avoiding the damaging costs of emergencies. It helps low-income people avoiding difficult, often devastating risk coping measures such as putting children to work, eating less food, or selling productive assets. But microinsurance can deliver many other benefits to low-income households, even in the absence of a shock.