Wealth and Insurance Choices: Evidence from U.S. Households

Using administrative data for 63,000 individuals across 2,500,000 person-month observations, we find that wealthier individuals have better life insurance coverage, controlling for the value of the asset insured, namely, the consumption needs of dependents. This positive wealth-insurance correlation, which is surprising given the prevailing view that wealth substitutes for insurance, persists after allowing for wealth-related differences in risk or bequest preferences, pricing, background risk, education, employment, or liquidity constraints. Our findings call for further investigation of this wealth-coverage correlation but support theories emphasizing the consumption-smoothing role of insurance across not only states of the world, but also time.