The Role of Life Insurance in Poverty Reduction

Mediating Effect of Financial Inclusion in Karnali Province, Nepal

Abstract

Purpose: This study examines the relationship between life insurance access and utilization and household poverty in Karnali Province, Nepal, with particular emphasis on the mediating role of financial inclusion.

Design/methodology/approach: A cross-sectional, explanatory design guided the study. Using purposive sampling, responses were gathered from 150 participants, and the resulting data were tested through Partial Least Squares Structural Equation Modelling (PLS-SEM).

Findings: Households with greater life insurance access showed measurably better financial inclusion and lower poverty levels, both effects reaching statistical significance. Financial inclusion itself, however, showed no meaningful link to poverty outcomes, and it failed to carry (mediate) the influence of life insurance through to poverty reduction.

Implications: Given these results, broadening life insurance access appears to offer households a more direct path toward financial stability and reduced poverty. Financial inclusion initiatives, by contrast, are unlikely to move the needle on poverty unless paired with
stronger income opportunities and financial literacy training.

Originality/value: Drawing on data from one of Nepal’s most understudied and economically disadvantaged regions, this research challenges the common assumption that financial inclusion automatically translates into reduced poverty. Instead, it positions life insurance as the more consequential factor, a finding that adds a distinct empirical contribution to the insurance-and-development literature.

JEL Classification: G22, I32, O16, D14