Prior research indicates a significant relation between life events and the demand for life insurance. This paper is the first study to relate the demand for life insurance to household portfolio holdings in a dynamic framework. The study examines changes in life insurance demand as a function of changes in household portfolio holdings and life events using panel data during the recent financial crisis. The results indicate that household portfolio holdings are more significant than life events in explaining life insurance ownership decisions, and suggest a complementary rather than a substitution relationship between the ownership of life insurance and the holdings of equity and bonds during recessions. The results also indicate that households with more financial assets allocated to bonds drop significantly more term life insurance coverage. Further implications for practitioners are discussed.
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See the National Bureau of Economic Research: https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions.
As in Liebenberg et al. (2012), SCF data is preferred in this paper to other sources of household panel data on life insurance holdings, such as the University of Michigan Health and Retirement Study (HRS) and Consumer Expenditure Surveys (CEX). The HRS data focuses on households over the age of 50 only, and the CEX data does not distinguish life insurance from other personal insurance.
See the official website of the SCF study: https://www.federalreserve.gov/econres/aboutscf.htm.
Whole life insurance coverage in this paper refers to the net amount of whole life insurance at risk, which is defined as the difference between the face value and cash value of whole life insurance policies.
The SCF survey asks respondents to list the children who live with the respondent with an assumption that children under the age of 18 are financially dependent on the respondent. Therefore, a decrease in the number of children for a household can be attributed to the decease of children under the age of 18 or the case that adult children no longer live with the respondent.
To check for robustness, all the regressions in this paper were run again with all the control variables using the 2009 data instead of the 2007 data. The results show no significant difference from the main results of this paper, which indicates that the analysis and the results of this paper are completely robust. A note that the control variable of ‘White’ (or the race of the household) is constant across these two years.
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The author is grateful to participants at the 2020 World Risk and Insurance Economics Congress and 2020 Academy of Financial Services Annual Conference for their helpful suggestions and comments.
Survey questions pertaining to the demand for life insurance in the codebook of the 2007–2009 Survey of Consumer Finances panel data set are listed as follows. For more information, see https://www.federalreserve.gov/econres/files/codebk2009p.txt.
The variables of household portfolio holdings are based on the macro codebook of the 2007–2009 Survey of Consumer Finances panel data set, listed as follows. For more information, see https://www.federalreserve.gov/econres/files/fedstables.macro.txt.
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Wang, N. A dynamic analysis of the demand for life insurance during the 2008 financial crisis: evidence from the panel Survey of Consumer Finances. Geneva Pap Risk Insur Issues Pract 48, 733–759 (2023). https://doi.org/10.1057/s41288-021-00262-2