Behavioral aspects of insurance purchase: Evidence from mortgage insurance

This paper examines behavioral aspects of insurance adoption by households, applied to mortgage insurance. Using a comprehensive dataset, I show that households who are more financially literate, more financially active, less risk averse and those with a higher locus of control are significantly less likely to purchase mortgage insurance, whereas households with bequest motives are significantly more likely to obtain insurance. In general, it appears that households who choose not to insure exhibit a greater degree of confidence in their financial knowledge and control over the consequences of their actions. Since these behavioral explanations are not mutually exclusive, a joint-analysis is conducted and it is found that especially financial literacy and locus of control are strong predictors of insurance adoption. The results are not explained by local housing market conditions, presence of financial advisors or effects of peers. House price expectations, concerns about future prospects and the current financial situation of the household were found to be insignificant.