Psychological dynamics of unit-linked insurance product decision-making: a cognitive model

Investment and insurance constitute pivotal subjects in financial management, especially in an era characterized by inflation. Unit-Linked Insurance Plans (ULIPs), with a unique combination of investment risks and insurance protection, potentially trigger distinct psychological processes that have been inadequately explored. To bridge this gap, the current research aims to develop a cognitive model for decision-making in purchasing ULIPs. Utilizing structural equation modeling, our research manipulated information related to ULIP products (performance and dividends) while measuring participants’ perceptions, cognitive assessments, emotional states, and investment willingness concerning the products (bottom-up pathway), along with their traits such as risk tolerance (top-down pathway). Our results indicated that perceived performance and dividends affect cognitive assessment and positive emotions within the bottom-up pathway, thereby enhancing the willingness to invest in ULIPs. Conversely, risk tolerance negatively affects perceptions, evaluations, and emotions associated with ULIPs in the top-down pathway. Understanding the perception of product characteristics and individuals’ risk tolerance plays a crucial role in shaping financial decisions. These findings have significant implications for the ULIP decision-making processes.In an era of financial complexity, this research develops a cognitive model that illuminates the psychological mechanisms underlying Unit-Linked Insurance Plan (ULIP) investment decisions. Findings reveal that perceived performance and dividends positively influence cognitive assessments and emotions, enhancing investment willingness, while individual risk tolerance negatively modulates product perceptions, evaluations, and emotions. This nuanced framework provides insurance companies with empirically grounded strategies for understanding investor behavior, ultimately advancing the personalization of financial product development and marketing approaches.