A major health event can leave a lower income family destitute with the adverse impact of medical costs and related expenses potentially crippling for generations. This is particularly true for developing countries like South Africa in this instance with high and multiple disease burdens and quality health care usually not available to the majority of the country. The aim of this paper is to assess the efficacy of low cost private insurance products in alleviating the risks to low income individuals related to both the direct and related costs of a major medical event. The analysis considers both the affordability aspects as well as the applicability of benefit factors. I used detailed actuarial modelling techniques on in depth industry data to compare the value of different products for low income individuals. I also quantified the risks posed by these products to the more formal pooled benefit funds that provide financial protection to higher income individuals. The model results indicate that these products can be a very effective tool for protecting low income individuals against both the direct and related costs of a major medical event. The results quantify the benefit richness of the different products. Individual case studies are also used to illustrate the benefits of different product classes and the impact of different regulations that have recently been proposed in the South African market. The nature of benefit levels and structure of pay-outs also imply that these products pose a very limited risk to products that provide financial protection to higher income individuals. Health funding mechanisms for low income individuals is one of the key challenges facing developing countries. Low cost private sector insurance products if managed and marketed correctly can be very effective in filling this void and if given the correct structure and distribution channels can alleviate the burden of the state and act as a wealth preserving tool to the most vulnerable sector of the population.

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