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i) As loan sizes increase, so do premia. But benefits increase less than in proportion, since a large part of the benefit includes fixed-size payouts in the event of death (the value of the other part, repayment of outstanding balances, grows in proportion to loan size). Small-scale borrowers thus get a better deal than large-scale borrowers, and the large-scale borrowers perceive the inequity.
ii) Coverage only lasts during the duration of a loan; so if you take a break between loans, your coverage lapses.
iii) In some cases, insurance purchases are mandatory. This is a wise response to adverse selection - since the program avoids facing a self-selected pool
that is riskier than average - but it means that clients who perceive themselves as being fairly safe (e.g., young, healthy borrowers) end up cross-subsidizing their riskier neighbors.
Kavungya answered the question on March 26, 2019 at 10:29
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