Three essays on human capital protection



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Disability and life insurance serve as vital hedges against an unexpected loss in human capital. The first essay explores factors that affect demand for disability insurance and investigates the impact of financial sophistication and professional financial advice on insurance ownership. Prior research shows that low financial knowledge, behavioral biases, and other barriers to purchase are related to low demand among households. Using the 2007 Survey of Consumer Finances, we find that demand for disability insurance increases with the use of a financial planner and proxies for group insurance availability. Results indicate that low demand for disability insurance can be attributed to both demand and supply factors. More men than women had the need for earnings protection, due to greater labor participation among men. However, women have increased participation both in the labor market and in male-dominated professions, implying a greater need for protection now than in the past. The aim of essay two is to examine disability and life insurance demand among men and women across the past decade. Using the 1998, 2001, 2004, 2007 and 2010 data from the Survey of Consumer Finances, a binomial logistic regression model is tested for each survey year to investigate the odds of demanding disability and then for life insurance demand. The regression analyses show that there are no significant differences between the genders. The odds of demanding disability insurance is significantly greater with a financial planner in 2004, 2007 and 2010 compared to respondents who do not use a financial planner. Implications include bundling disability and life insurance products to solicit wider consumer participation. Additionally, framing disability benefits in an annual amount rather than a monthly figure may further promote saliency of disability insurance. The baby boomers represent a large percentage of the U.S. population. Their preparation for retirement, or lack thereof, can affect the economy at large. In light of the 2008 financial crisis, boomer households may be delaying retirement, choosing to work longer. In the event that baby boomers are not holding sufficient amounts of life insurance, there may be significant economic and social hardships to come. The third and final essay aims to examine baby boomer life insurance adequacy before and after the financial crisis of 2008. Using the 2004 and 2010 Survey of Consumer Finance, logistic regression analyses are employed to examine life insurance adequacy for baby boomers. We find a significant difference in 2010 between the baby boomers and the senior generation in life insurance adequacy. Variables related to net worth, such as income, marital status, and self-insurability were significant predictors of life insurance adequacy. Given greater life insurance adequacy among those with higher income, increasing group term insurance may help mid to low income households. Further implications for financial planning practitioners and educators are suggested.



Disability Insurance, Life Insurance, Human Capital