Cognitive abilities and life insurance holdings: evidence from 16 European countries

The aim of this study is to examine the relationship between two types of cognitive abilities (numeracy and recall) and life insurance holdings in European countries. Households with better numeracy and recall are more likely to own life insurance. Interaction effects indicate a higher level of education decreases the positive effect of numeracy on life insurance holdings and increases the positive effect of recall on life insurance holdings. Multinomial regressions indicate that recall has a positive impact on the decisions to hold term life, whole life, and both term and whole life insurance policies and a negative impact on the decision not to hold any type of life insurance policy. We also find that recall has a greater impact on the decision to own term life policies than on the decision to own whole life (both term and whole life) policies. One possible reason is whole life policies consist of many options that are difficult to comprehend even with higher cognitive abilities. One implication of this study is marketing by life insurers should take into account household cognitive abilities.