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 those with more wealth have better life and property insurance coverage, controlling for the value of the assets insured. This puzzling positive wealth-insurance correlation is not explained by wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, or pricing, and is observed cross-sectionally, as well as within-person. These findings call for a better understanding of the demand and supply of this important aspect of households’ portfolios.

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• Keyword(s):
• economic outlook 235
• finance 247
• insurance 5

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