Wealth and Insurance Choices: Evidence from US Households

57 Pages Posted: 19 Jul 2021

See all articles by Michael Gropper

Michael Gropper

University of North Carolina Kenan-Flagler Business School

Camelia M. Kuhnen

University of North Carolina Kenan-Flagler Business School & NBER

Multiple version iconThere are 2 versions of this paper

Date Written: July 16, 2021

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 lower coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Keywords: household finance, insurance choices, financial disparities

JEL Classification: G52, G51, D14

Suggested Citation

Gropper, Michael and Kuhnen, Camelia M., Wealth and Insurance Choices: Evidence from US Households (July 16, 2021). Kenan Institute of Private Enterprise Research Paper No. 2021-05, Available at SSRN: https://ssrn.com/abstract=3888422 or http://dx.doi.org/10.2139/ssrn.3888422

Michael Gropper

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Camelia M. Kuhnen (Contact Author)

University of North Carolina Kenan-Flagler Business School & NBER ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
(919) 9623284 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/

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