Wealth and Insurance Choices: Evidence from US Households

Gropper, Michael J.; Kuhnen, Camelia M.

doi:10.3386/w29069

Cited by 3 publications

(5 citation statements)

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“…People with low income do not seem to respond to the incentive positively. This is consistent with, for example Gropper and Kuhnen (2021), who studied the coverage of term life insurance policies with US register data. They found that the ownership is strongly positively correlated with wealth.…”

Section: Appendix/online Appendixsupporting

confidence: 90%

“…This is because there are fixed costs associated with insurance, which can be avoided by precautionary saving. However, when Gropper and Kuhnen (2021) studied the coverage of term life insurance policies with US register data, they found that their ownership is strongly positively correlated with wealth. Li et al (2007) studied the demand for life insurance statistically using panel data on OECD countries.…”

Section: Factors Influencing the Demand For Life Insurancementioning

confidence: 99%

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Mind the Gap – Assessing the Size and Determinants of the Life Insurance Gap

Ropponen,

Kuusi,

Valkonen

2023

JFEA

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Preparing for the monetary loss associated with premature death of the breadwinner has become more relevant during the COVID-19 pandemic. However, very little is known about how much of the financial vulnerabilities are covered by the life insurance holdings in different population groups. We employ unique individual-level life insurance data of the Finnish population to study the voluntary life insurances, the components of financial loss following from a death of a breadwinner, and the gap in death cover (life insurance gap) calculated as the difference of the two. We find that only about 10% of Finns have a voluntary life insurance, and that they are concentrated on married people, people of working age and with higher income. The largest insurance gaps are among young individuals, men, high income and highly educated people. We also find that the insurance behavior is poorly explained by the net losses following from a death.

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Section: Appendix/online Appendixsupporting

confidence: 90%

Section: Factors Influencing the Demand For Life Insurancementioning

confidence: 99%

Mind the Gap – Assessing the Size and Determinants of the Life Insurance Gap

Ropponen,

Kuusi,

Valkonen

2023

JFEA

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“…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.…”

Section: Perception Of Insurance Usefulnessmentioning

confidence: 99%

“…Lastly, this paper also expands the understanding of household attitude towards insurance, an understudied area in household finance (Gomes et al, 2021). 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).…”

Section: Background and Related Literaturementioning

confidence: 99%

“…If a lower‐income household does purchase an insurance policy, they may be forced to purchase more limited coverage due to liquidity constraints. Indeed, lower‐income groups have been found to buy less insurance, selecting policies with lower coverage limits or/and higher deductibles (Gropper & Kuhnen, 2021; Royal, 2018). Restricted coverage, while lowering costs, does diminish the usefulness of insurance.…”

Section: Perception Of Insurance Usefulnessmentioning

confidence: 99%

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

You,

Kousky

2024

J of Risk & Insurance

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We study the role of insurance in improving household and community disaster recovery. Our analysis harnesses both a unique survey of residents impacted by four land‐falling hurricanes in the United States and foot traffic data on visits to local businesses. Households sort into two groups when it comes to financing recovery: those primarily using property insurance and those largely uninsured, instead relying more on friends and family. Insurance improves households' ability to participate in the local economy. Postflood visitation rates to many local businesses increase with greater flood insurance take‐up rates. Expanded participation in the local economy is consistent with insurance reducing financial constraints; indeed, insured households are less likely to report experiencing high financial burdens in both the short and longer‐run postdisaster and are less likely to have unmet funding needs. Despite this, motivating the purchase of disaster insurance remains challenging, particularly among low‐income households who perceive insurance as less useful.

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Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts

Hurwitz,

Sade

2024

Management Science

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We investigate the consequences of holding multiple accounts for payout decisions at retirement. Using proprietary data of retirees’ annuitization decisions, we find that small accounts are more likely to be cashed out. We use occupation information as a proxy for wealth to disentangle income from the multiple-accounts effect. We show that individuals with high expected wages are more likely to annuitize overall but less likely to annuitize their small accounts (comparing to individuals with low wages). A laboratory experiment and an online experimental survey (with a large representative sample) suggest that the composition of multiple accounts affects the annuitization rates via the decisions regarding small versus large accounts. This paper was accepted by Camelia Kuhnen, finance. Funding: This work was supported by the Albertson-Waltuch Chair in Business Administration, the Kruger Center at the Hebrew University, the Think Forward Initiative, and the German-Israeli Foundation for Scientific Research and Development and by funding from the Center for Agriculture, Environment and Natural Resource. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.02489 .

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Wealth and Insurance Choices: Evidence from US Households

Cited by 3 publications

References 0 publications

Mind the Gap – Assessing the Size and Determinants of the Life Insurance Gap

Mind the Gap – Assessing the Size and Determinants of the Life Insurance Gap

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

Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts

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