Working Paper: NBER ID: w29069
Authors: 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.
Keywords: No keywords provided
JEL Codes: D14; G22; G51; G52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wealth (D31) | Life Insurance Coverage (G52) |
| Wealth (D31) | Homeowners Insurance Coverage (G52) |
| Wealth (D31) | Risk Tolerance (G11) |
| Wealth (D31) | Consumption Volatility (E21) |
| Wealth (D31) | Financial Volatility (G19) |
| Wealth (D31) | Litigation Risk (K41) |
| Risk Tolerance (G11) | Insurance Coverage (G52) |
| Consumption Volatility (E21) | Insurance Needs (G52) |
| Financial Volatility (G19) | Insurance Needs (G52) |
| Litigation Risk (K41) | Property Insurance Coverage (G52) |