Life Insurance Holdings in the Great Recession: Examining the Impact of Changes in Household Structure, Financial Position, and Risk Aversion on the Decision to Purchase or Drop Coverage

Using panel data from the 2007-09 Survey of Consumer Finances, this research explores channels through which the Great Recession affected households’ demand for life insurance policies. Existing literature suggests that the economic downturn induced changes in insurance coverage due to both financial and psychological shocks. This paper utilizes Probit regressions with differenced explanatory variables to analyze whether changes in household structure, economic stability, and financial risk aversion caused households to drop or purchase life policies. My results indicate that the Great Recession impacted life insurance demand in the U.S. through the deterioration of household financial status and increases in unemployment. The most novel contribution of this research is the significant positive relationship the results show between increases in risk aversion and the decision to drop life insurance coverage. Clare Peaslee EC484 – Honors Thesis Professor Donihue Professor Gunter Spring 2014