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

26 Pages Posted: 3 Jan 2018

See all articles by Thomas A. Durkin

Thomas A. Durkin

Board of Governors of the Federal Reserve System

Gregory Elliehausen

Federal Reserve Board

Date Written: 2017-12-18

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.

Keywords: Credit insurance, Personal finance, Consumer protection, Insurance

JEL Classification: D14, D18, G22

Suggested Citation

Durkin, Thomas A. and Elliehausen, Gregory, New Evidence on an Old Unanswered Question: Why Some Borrowers Purchase Credit Insurance and Other Debt Protection and Some Do Not (2017-12-18). FEDS Working Paper No. 2017-122. Available at SSRN: https://ssrn.com/abstract=3091597 or http://dx.doi.org/10.17016/FEDS.2017.122

Thomas A. Durkin (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gregory Elliehausen

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2326 (Phone)

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