Access to Credit Reduces the Value of Insurance
34 Pages Posted: 13 Apr 2024
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Access to Credit Reduces the Value of Insurance
Access to Credit Reduces the Value of Insurance
Date Written: April 11, 2024
Abstract
We analyze the value of insurance when individuals have access to credit markets. Loans allow consumers to smooth financial shocks over time, decreasing the value of consumption smoothing from insurance. We derive formulas for the value of insurance that can be taken to data, and show how that value depends on individual characteristics and features of loans. We estimate that access to a five-year loan decreases the values of community- and experience-rated insurance for the average beneficiary by $232–$366 (58–61%). Even for the sickest decile, this loan access reduces the value of community-rated insurance by $1,099 (17%).
Keywords: insurance, credit markets
JEL Classification: D1, I13
Suggested Citation: Suggested Citation