5 ways poor people benefit from rich through insurance

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Chuks Udo Okonta

Insurance remains one of the most effective tools for financial protection and social stability, cutting across income levels and economic classes. Beyond risk management, the insurance mechanism also promotes a form of wealth redistribution, enabling the poor and vulnerable to benefit from the contributions of the rich. Through structured risk pooling and mandatory schemes, insurance allows resources to flow from those with greater financial capacity to those with limited means.

Risk Pooling Drives Cross-Subsidisation

At the core of insurance operations is risk pooling, where premiums paid by individuals and organisations are aggregated to settle claims. High-net-worth individuals, large corporations and asset-heavy businesses typically pay higher premiums due to the size and value of their risks. These substantial contributions strengthen the insurance pool, making it possible for insurers to pay claims arising from losses suffered by low-income policyholders.

Claims Payments Prevent Deeper Poverty

For the poor, unexpected events such as fire outbreaks, accidents, illness or death often have devastating financial consequences. Insurance claims provide critical relief at such moments. Premium inflows from wealthy policyholders ensure that insurers maintain sufficient capacity to honour claims, helping low-income families recover from losses and avoid sliding further into poverty.

Microinsurance Expands Financial Inclusion

The expansion of microinsurance has opened the door of formal insurance to low-income earners, artisans, farmers and informal sector operators. These low-cost products are made viable partly by the strong capital base and profitability generated from high-value policies purchased by the rich. As a result, insurers are able to design affordable life, health, agricultural and funeral insurance products targeted at the poor.

Mandatory Insurance Schemes Protect Low-Income Workers

Several compulsory insurance arrangements are largely funded by employers and high-income contributors. Group life insurance, health insurance, motor third-party insurance and pension-related covers provide protection for workers, many of whom fall within the low-income bracket. When insured events occur, benefits are paid to workers or their dependants, offering financial support financed mainly by higher premium contributors.

Business Insurance Supports Jobs and Livelihoods

Insurance taken by wealthy individuals and corporate organisations helps stabilise businesses and the wider economy. When insured firms suffer losses, claims payments enable them to resume operations, protect assets and retain employees. This indirectly benefits low-income workers by preserving jobs, income streams and economic activities, especially during periods of crisis.

While insurance is often viewed as a personal or corporate financial safeguard, its wider social value is frequently overlooked. By pooling risks and redistributing resources, the insurance system allows the rich to support the poor in a structured and sustainable way. This reinforces insurance as not only a risk management tool, but also a driver of economic resilience and inclusive growth.