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Access to Credit Reduces the Value of Insurance

Author

Listed:
  • Sonia Jaffe
  • Anup Malani
  • Julian Reif

Abstract

We analyze the value of insurance when individuals have access to credit markets. Loans allow consumers to smooth financial shocks over time, decreasing the value of consumption smoothing from insurance. We derive formulas for the value of insurance that can be taken to data, and show how that value depends on individual characteristics and features of loans. We estimate that access to a five-year loan decreases the values of community- and experience-rated insurance for the average beneficiary by $232-$366 (58--61%). Even for the sickest decile, this loan access reduces the value of community-rated insurance by $1,099 (17%).

Suggested Citation

  • Sonia Jaffe & Anup Malani & Julian Reif, 2024. "Access to Credit Reduces the Value of Insurance," NBER Working Papers 32395, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32395
    Note: EH
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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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