- Building financial resilience in Pakistan: the expanding role of life insurance as a risk mitigator
Life insurance serves as a vital risk mitigation tool for individuals — especially salaried employees and small business owners in developing countries like Pakistan — where weak social safety nets and high financial vulnerability mean that unforeseen events can cause severe financial shocks, potentially leading to long-term hardship due to factors like debt, business disruption, limited social protection, and often times families reliance on a single breadwinner.
Life insurance provides crucial financial protection for dependents by providing coverages for financial risk factors. Additionally, both salaried and business segment/individuals of a variety of financial strengths go through similar issues. Life insurance companies have recognized their potential to bridge these gaps by offering protection-oriented and savings-focused products tailored to underserved communities to help the underdeveloped financial market.
Life insurance in developing economies & financial inclusion
1- Income Replacement and Risk Mitigation
a) Salaried Individuals: Insurance covers living costs, dependents education, and offers long-term retirement savings and emergency loans.
b) Small Business Owners: Shields families from business debts and aids continuity via life insurance cover.
2- Debt and Loan Protection
Life insurance can be used to settle personal or business loans after the policy holder’s passing, preventing debt or loans from passing onto their heirs. This is essential for those with mortgages or business loans.
3- Business Continuity and Key Person Insurance
Keeps small businesses running after the loss of a key person. Helps with ownership transfer and succession.
4- Savings, Investment, and Long-Term Wealth Building
Policies like endowment or unit-linked plans grow savings for retirement, education, or home buying—ideal in low-investment environments.
5- Emergency and Funeral Expense Coverage
Provides quick funds for funeral and immediate needs, easing family burdens during loss.
6- Tax Benefits
Premiums are often tax-deductible in many countries, making insurance a smart financial choice.
7- Financial Inclusion and Formal Participation
Promotes saving habits and introduces individuals to formal financial systems, reducing dependency on informal loans.
Impact of inclusive insurance on UN SDGs and its alignment with risk mitigation factors.
In developing countries, where financial vulnerability is high and a large segment of the population remains underserved, life insurance plays a transformative role in advancing social and financial resilience. Inclusive insurance—affordable, accessible, and tailored for low-income, rural, and informal sector individuals—not only safeguards families from economic shocks like illness, death, or loss of livelihood, but also bridges them to formal financial systems. This aligns directly with multiple United Nations Sustainable Development Goals (SDGs) including SDG 1—No Poverty, SDG 8—Decent Work,by mitigating income loss and enhancing financial security, SDG 3—Good Health, through health-linked micro insurance, SDG 5—Gender Equality via financial empowerment of women, SDG 13—Climate Action With index-based crop and disaster insurance, SDG 17—Partnerships for the Goals, fostering public-private collaborations in disaster resilience and financial inclusion.
Pakistan’s growing use of digital platforms and innovation through partnerships further strengthen the expansion and accessibility of inclusive insurance. Integration of insurance with financial digital solutions such as, mobile wallet providers, banks, and digital payment gateways.
Ultimately, life insurance is not only a tool for individual risk mitigation but a catalyst for equitable and sustainable economic development and broader SDG achievement. Key initiatives include:
- Microinsurance Products: Affordable, protection-focused policies that offer low-income families a financial buffer during emergencies.
- Digital Platforms: Mobile-based onboarding and premium collection are extending services to remote areas without physical branches.
- Partnerships with Fintech: Collaborations with Banks and mobile wallet providers to simplify payments and improve policy awareness & accessibility.
Progress & Challenges
Life insurance providers in Pakistan have seen a rise in microinsurance enrollment, signaling increased public awareness around financial protection. However, challenges such as regulatory barriers, lack of financial literacy, and cultural resistance persist. Inclusive insurance, despite its promise, still struggles to gain acceptance in low-income and informal sectors. To build trust and address the fear of the unknown, targeted financial education campaigns and stable public-private collaboration are essential.
Conclusion
As Pakistan advances its financial inclusion agenda, life and inclusive insurance are emerging as key instruments for social protection. Life insurance safeguards salaried and business-class families, while inclusive models provide affordable risk coverage to underserved populations. Together, they offer protection from income loss, illness, debt, and natural disasters on account of the key person’s passing. By leveraging technology and innovative distribution channels insurers are contributing to a safer and more financially secure future for millions.
With consistent effort, the sector can address challenges to further accelerate the positive trajectory, while keeping in alignment with the UN’s SDGs—reducing poverty, enabling economic stability, and ensuring a broader access to essential services and financial security for all Pakistanis.
The contributors are: Absar Azim Burney, Head of Direct Distribution & Syed Sheraz Ali Bukhari, Head – Corporate Distribution, Digital Transformation, Alliances & Individual Life Persistency