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Journal of Banking and Finance


Lifeinsurance,Behavioral insurance,Emergency fund hypothesis,Financial literacy,Financial advice,Heuristic decision making


  1. Sven Nolte
  2. Judith C. Schneider


    2. BANKING


      Many policyholders surrender their life
      insurance policies early, leading to substantial monetary losses for private
      households. Surrender can be explained rationally if it constitutes the last
      resort providing liquidity in the event of an urgent need of cash. Yet we find
      clear evidence in German panel data that for more than half of all surrendered
      contracts investors had cheaper options available to provide the required
      liquidity. This finding demonstrates that there must be other factors influencing
      this important life decision. We provide a behavioral explanation, focusing on
      the role of individual decision heuristics, financial literacy, and financial
      advice. In particular, we show that financial literacy and financial advice can
      mitigate the behavioral temptation to lapse, while the tendency to rely on
      heuristics increases lapse probability.


      Vol 79, Tahun 2017


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