Households in developing rural economies face a multitude of risks. When financial alternatives are limited, in the face of disaster, households typically turn to two coping strategies: reduction of assets to smooth consumption, or reduction of consumption to protect assets. Both of these strategies can have costly long-term economic consequences. Before a shock even occurs, households may try to further protect themselves by avoiding risky — but potentially profitable — opportunities for growth. Because of this, the development impacts of risk reduction through insurance should be significant. By protecting households against the worst consequences of adverse climatic shocks, index insurance should not only prevent households from adopting costly coping strategies, but in principal should also allow households to prudentially invest more in risky, but high returning agricultural activities.