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Wealth and Insurance Choices: Evidence from US Households

Author

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  • Michael J. Gropper
  • Camelia M. Kuhnen

Abstract

Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Suggested Citation

  • Michael J. Gropper & Camelia M. Kuhnen, 2021. "Wealth and Insurance Choices: Evidence from US Households," NBER Working Papers 29069, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29069
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    Cited by:

    1. Ropponen, Olli & Kuusi, Tero & Valkonen, Tarmo, 2022. "Mind the Gap – Assessing the Size and Determinants of the Life Insurance Gap," ETLA Working Papers 96, The Research Institute of the Finnish Economy.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance

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