Agriculture and development remain intricately linked in most of the developing world and this paper examines how to make index insurance a sustainable tool for economic development. Many of the world`s rural poor depend on agriculture for their livelihoods and because of this extreme weather conditions can threaten the recovery of poor agricultural households from the shock of a disaster and push the poorest of these households into cycles of poverty from which it is difficult to recover. Besides the direct impacts, weather risk also has indirect impacts on the behavior of the rural poor, who generally engage in low-risk, low-return economic activities, costing all of society in lost opportunities.