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New Evidence on an Old Unanswered Question : Why Some Borrowers Purchase Credit Insurance and Other Debt Protection and Some Do Not

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Abstract

Credit related insurance and other debt protection are products sold in conjunction with credit that extinguish a consumer?s debt or suspends its periodic payments if events like death, disability, or involuntary unemployment occur. High penetration rates observed in the 1950s and 1960s raised concerns about coercion in the sale of credit insurance. This study presents evidence on credit insurance purchase and debt protection decisions from a new survey. The findings provide little evidence of widespread or systematic coercion in purchases. Instead, findings suggest that risk aversion and health or financial concerns motivate consumers to purchase credit insurance and debt protection, just as these concerns also motivate purchases of other types of insurance.

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  • Thomas A. Durkin & Gregory E. Elliehausen, 2017. "New Evidence on an Old Unanswered Question : Why Some Borrowers Purchase Credit Insurance and Other Debt Protection and Some Do Not," Finance and Economics Discussion Series 2017-122, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2017-122
    DOI: 10.17016/FEDS.2017.122
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    File URL: https://www.federalreserve.gov/econres/feds/files/2017122pap.pdf
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    References listed on IDEAS

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    1. Durkin, Thomas A. & Elliehausen, Gregory & Staten, Michael E. & Zywicki, Todd J., 2014. "Consumer Credit and the American Economy," OUP Catalogue, Oxford University Press, number 9780195169928.
    2. Thomas A. Durkin, 2002. "Consumers and credit disclosures: credit cards and credit insurance," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 88(Apr), pages 201-213, April.
    3. Robert A. Eisenbeis & Paul Schweitzer, 1979. "Tie-ins between the granting of credit and sale of insurance by bank holding companies and other lenders," Staff Studies 101, Board of Governors of the Federal Reserve System (U.S.).
    4. Glenn B. Canner & Anthony W. Cyrnak, 1986. "Consumer experiences with credit insurance: some new evidence," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 5-20.
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    More about this item

    Keywords

    Credit insurance; Personal finance; Consumer protection; Insurance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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