Overcoming Barriers to Life Insurance Coverage: A Behavioral Approach

Abstract

While life insurance purchase decisions have long been studied, we still do not know how people decide if they need insurance or how much they need.  Using in-depth interviews, we peer into the black box of employee decision-making to learn what people know about this employee-benefit, and how they decide if it is of value to them.  We find that individuals understand the need for life insurance but find many behavioral economic barriers to getting adequate coverage, including mental accounting, money illusion, and the strong role of defaults.  We then conduct an online experiment of the hypothetical employee-benefit purchase scenario and find a few, simple interventions could help individuals better decide their life insurance needs.