AN EXPECTED UTILITY MODEL OF CONSUMER CREDIT INSURANCE DEMAND
Abstract
The increasing amount of proposed legislation in the area of consumer credit insurance has brought with it the need to examine the motivation for borrowers to purchase this type of insurance. In particular, a model to explain why consumers would voluntarily purchase consumer credit insurance is essential in evaluating the usefulness of legislation that would limit the availability of such insurance. A hypothetical alternative to consumer credit insurance is presented in order to demonstrate the differences in the prices paid by consumers for credit insurance and its nearest substitute. The factors upon which premiums are based are described. A model of consumer credit life insurance demand is presented, based on the assumption that coercion to buy credit life is nonexistent. The credit life insurance demand function is derived from the expected utility maximization, risk aversion, and bequest motive assumptions. The credit life insurance demand function is empirically investigated using a cross-section consumer survey. The results are found to be promising.
Degree
Ph.D.
Subject Area
Economics
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