Wealth and Insurance Choices: Evidence from US Households

Michael J. Gropper and Camelia Kuhnen

No 29069, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D14 G22 G51 G52 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-fdg, nep-fle, nep-hea, nep-ias, nep-isf and nep-rmg
Note: AP
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