Life insurance demand and borrowing constraints. Issue 1 (22nd February 2021)

• Record Type: Journal Article
• Authors: Srbinoski, Bojan; Poposki, Klime; Born, Patricia H.; Lazzari, Valter
• Is Part Of: Risk management and insurance review. Volume 24:Issue 1(2021)
• Page Start: 37
• Page End: 69
• Publication Date: 2021-02-22
• Subjects: Risk (Insurance) -- Periodicals; Risk management -- Periodicals; Risk (Insurance) -- United States -- Periodicals; Risk management -- United States -- Periodicals; 368
• DOI: 10.1111/rmir.12166
• Languages: English
• ISSNs: 1098-1616

Abstract

Abstract: The literature devoted limited attention to exploring the relationship between financial development and life insurance demand. Financial development supports life insurance supply by providing confidence in the financial system, more efficient payment systems, and higher availability of financial instruments. However, financial development reduces households' needs to save by relaxing borrowing constraints, indirectly affecting life insurance demand. We contribute by providing a demand‐driven explanation of the negative consequences of financial development on life insurance development. We find that more credit‐constrained countries have higher life insurance penetration on average. Indirectly, the role of borrowing constraints signifies the importance of life insurance policies as a financing tool in case of the realization of various background risks. This study integrates the knowledge from life insurance theory, life insurance lapse, policy loans demand, and saving under liquidity constraints literature and produces implications for researchers, policymakers, and life insurers.