Insurance and portfolio decisions: Two sides of the same coin?

Improving household and community disaster recovery: Evidence on the role of insurance

“…In addition, beyond cost‐related reasons, the positive relationship between income and insurance status that we document in the survey (see Table 7) may also be driven by the fact that people with higher income perceive insurance as more useful and so purchase it more than those with lower income. More interestingly, a few recent studies have shown that this positive correlation between household wealth and insurance demand persists even after accounting for insurance costs, liquidity constraints, financial literacy, and other factors (Armantier et al, 2023; Gropper & Kuhnen, 2021). Our results suggest that households' subjective views of insurance usefulness may speak to the puzzle.…”

“…There is currently a growing number of empirical studies that document a positive correlation between household wealth and insurance demand (Gropper & Kuhnen, 2021), a puzzle that contradicts the prediction from standard economic theories (see, e.g., Gollier, 2003; Mossin, 1968). Attributes such as liquidity constraints, financial literacy, creditworthiness, and risk perceptions can only partially explain this relationship (Armantier et al, 2023). Our finding suggests that individuals' subjective view about insurance may also play a role: in the setting of an unexpected financial shock from hurricanes, lower‐income households consistently perceive insurance as a less useful tool across both insured and uninsured households, though intuitively they should derive higher marginal utility from holding insurance.…”

Why do people buy insurance? A modern answer to an old question

“…These works show that an increase in consumption can be the underlying purpose of insurance instead of an undesired side effect. This alternative interpretation of the behavioral response becomes more 23 In a recent article, Amentier et al (2018) find that individuals with higher wealth have both more insurance and hold more risky assets. Even after controlling for wealth, the positive correlation remains robust.…”