Nudging Life Insurance Holdings in the Workplace

Harris, Timothy and Yelowitz, Aaron (2015): Nudging Life Insurance Holdings in the Workplace.

Abstract

Using administrative data from a large public university, we analyze a policy designed to increase employer-sponsored life insurance. The University always had a supplemental life insurance plan available for its workers. In 2008, it increased its provision of basic coverage from a $10,000 to 1x salary. Workers initially paying for supplemental life insurance were in a position to completely undo the increase in basic coverage by scaling back supplemental elections, yet their default choice in 2008 was to continue at their existing level from 2007. The increased provision of basic coverage therefore represents a nudge for employees to increase life insurance. The nudge increased life insurance holdings one-for-one, both in the short and long-run, even for workers who actively made changes to other fringe benefits. New hires, who had to make an active choice, elected less supplemental coverage after 2008 relative to earlier cohorts of new hires, providing additional evidence of a significant degree of inertia among existing workers. Additionally, we find evidence of inertia for high earners constrained by the maximum limits. Data from a national sample of job changers show minimal crowd-out of individual market coverage from increased employer- sponsored life insurance. Further, we discuss the desirability of the nudge and find that the increase in basic coverage decreased life insurance dis- parities for two-thirds of employees

• Item Type: MPRA Paper
• Language: English
• Keywords: Life Insurance, Inertia
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J32 - Nonwage Labor Costs and Benefits ; Retirement Plans ; Private Pensions; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy

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