Nudging Life Insurance Holdings in the Workplace

48 Pages Posted: 10 Oct 2015

See all articles by Timothy F. Harris

Timothy F. Harris

Illinois State University - Department of Economics

Aaron Yelowitz

University of Kentucky - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 9, 2015

Abstract

Using administrative data from a large public university, we analyze a policy designed to increase employer-sponsored life insurance. The University always had a supplemental life insurance plan available for its workers. In 2008, it increased its provision of basic coverage from a $10,000 to 1x salary. Workers initially paying for supplemental life insurance were in a position to completely undo the increase in basic coverage by scaling back supplemental elections, yet their default choice in 2008 was to continue at their existing level from 2007. The increased provision of basic coverage therefore represents a nudge for employees to increase life insurance. The nudge increased life insurance holdings one-for-one, both in the short and long-run, even for workers who actively made changes to other fringe benefits. New hires, who had to make an active choice, elected less supplemental coverage after 2008 relative to earlier cohorts of new hires, providing additional evidence of a significant degree of inertia among existing workers. Additionally, we find evidence of inertia for high earners constrained by the maximum limits. Data from a national sample of job changers show minimal crowd-out of individual market coverage from increased employer-sponsored life insurance. Further, we discuss the desirability of the nudge and find that the increase in basic coverage decreased life insurance disparities for two-thirds of employees.

Keywords: Life Insurance, Inertia, Employer Sponsored Life Insurance, Behavioral Economics

JEL Classification: D31, G22, D03, J32, J33, J38, H20

Suggested Citation

Harris, Timothy F. and Yelowitz, Aaron, Nudging Life Insurance Holdings in the Workplace (October 9, 2015). Available at SSRN: https://ssrn.com/abstract=2671846 or http://dx.doi.org/10.2139/ssrn.2671846

Timothy F. Harris

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

HOME PAGE: http://www.timothyfharris.com

Aaron Yelowitz (Contact Author)

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

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