Explaining consumers' progress through life insurance decision states: The role of personal values and consumer characteristics

• Published date: 01 July 2023
• Author: Hazel Bateman,Paul Gerrans,Susan Thorp,Yunbo Zeng
• Date: 01 July 2023
• DOI: http://doi.org/10.1111/joca.12524

RESEARCH ARTICLE

Explaining consumers' progress through life

insurance decision states: The role of personal

values and consumer characteristics

Hazel Bateman

1

| Paul Gerrans

2

| Susan Thorp

3

|

Yunbo Zeng

3

1

UNSW Sydney Business School, School

of Risk & Actuarial Studies, UNSW

Sydney and CEPAR, Kensington,

Australia

2

UWA Business School, Accounting and

Finance, The University of Western

Australia, Perth, Australia

3

Sydney University Business School,

Finance Discipline, The University of

Sydney, Sydney, Australia

Correspondence

Hazel Bateman, UNSW Sydney and

CEPAR, Kensington, Australia.

Email: h.bateman@unsw.edu.au

Funding information

Australian Research Council,

Grant/Award Numbers: CE17010005,

DP1093842, LP150100434; ARC Linkage;

ARC Discovery

Abstract

Many people have unsuitable life insurance cover or no

cover at all. In this study, we survey consumers about

their readiness to purchase life insurance. Consumers

rate their own “decision state”from “pre-aware”of life

insurance to “aware,”“interested”or “capable”of

deciding to purchase. We also collect data on factors

associated with progress along the path to purchase.

We find that personal values partly determine life

insurance decision states. Values matter in addition to

the needs of dependents, bequest intentions, and finan-

cial literacy. Consumers who place more value on

benevolence and self-direction are more likely to be

aware of life insurance. Our results suggest strategies to

promote suitable life insurance cover by targeting fac-

tors that help progress through each decision state.

Insurance providers could thus prime benevolence and

self-direction in advertising and product information.

KEYWORDS

decision states, defaults, financial literacy, life insurance,

personal values

Received: 19 November 2021 Revised: 30 October 2022 Accepted: 9 February 2023

DOI: 10.1111/joca.12524

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distrib ution and

reproduction in any medium, provided the original work is properly cited.

© 2023 The Authors. Journal of Consumer Affairs published by Wiley Periodicals LLC on behalf of American Council on Consumer

Interests.

J Consum Aff. 2023;57:1151–1182. wileyonlinelibrary.com/journal/joca 1151

The ability to absorb financial shocks is one of four components of consumer financial

well-being, along with day-to-day financial control, tracking toward goals, and enjoying some

financial freedom (CFPB, 2015). Since the 18th century, life insurance has helped households

weather losses when a family member dies prematurely or becomes permanently disabled. The

benefits of life insurance also go beyond the affected household. They extend to wider society if

insured households draw less support from social security programs after a loss. However, a life

insurance policy is a long-term, complicated financial contract. Policies have terms and features

that many consumers find hard to understand (ASIC & AFM, 2019; Schwarcz, 2010). And the

contract covers an event that most people do not want to contemplate (Greenberg et al., 1997;

James III, 2016; Pyszczynski et al., 1999; Salisbury & Nenkov, 2015).

Complicated policies, consumers' limited financial capability and distaste for mortality pre-

sent a challenge. Many households fail to buy life insurance or do not choose suitable cover

(Campbell et al., 2011; Schwarcz, 2010). In the United States, the percentage of people with life

insurance has fallen over the past decade, currently standing at around 50% (LIMRA, 2020).

The percentage is even lower in Europe (Eling et al., 2021). In Australia, the setting for our

study, participants in retirement plans

1

are automatically enrolled in group life insurance.

2

Automatic insurance cover in retirement plans, alongside a retail market that sells life policies

directly, means that more than 90% of Australian workers have some life cover (Rice

Warner, 2018). However, default settings are often unsuitable for individual consumers or their

families. In fact, cover for the median household is only 25%–30% of the recommend basic level

(Rice Warner, 2018). Moreover, plan participants are unlikely to adjust their default cover

because of low awareness. Around 25% do not know they have life insurance and a further 16%

do not know what cover their policies provide (ASIC, 2018: Productivity Commission, 2018).

Only a very small minority opt out (Harris & Yelowitz, 2017; Productivity Commission, 2018,).

3

Australian evidence of unsuitable cover agrees with studies from other jurisdictions that show

similar mistakes by insurance consumers (Schwarcz, 2010). This raises the issue of how con-

sumers with unsuitable life cover can be identified and helped.

Thereisalargebodyoftheoryandempiricalevidence relating to consumer demand for life

insurance. The life-time utility maximization theory of Yaari (1965), Campbell (1980), and

Bernheim (1991) predicted that people facing uncertain length of life will take out life insurance to

manage income and provide bequests. Demand should therefore increase with risk aversion,

bequest intentions, household formation (having a spouse and dependents) and human capital.

Demand should decrease with life expectancy, time preference, net assets (including

homeownership), and age. Empirical studies confirm theory and also link demographics, socioeco-

nomic status, psychological traits, social interactions, and financial literacy to insurance demand

(Allgood & Walstad, 2016;Lewis,1989;Linetal.,2017; Outreville, 2015;Zietz,2003). However, con-

sumers could also be unaware of, or misvalue, life insurance. People might have mistaken beliefs

about the risk and financial consequences of premature death (Harris & Yelowitz, 2017;Heimer

et al., 2019;Tulietal.,2007;Wuetal.,2015). Or they might think that the governmen t will take

care of them after catastrophic losses (Robinson et al., 2021; Viscusi & Zeckhauser, 2006). Overall,

these studies are a foundation for understanding patterns of life insurance consumption, but there

is scope to explore consumer interaction with this complex and important financial decision.

In this article, we make two related extensions to life insurance research. Firstly, we propose a

model of insurance purchase that classifies consumers by the stages of their purchase decision

journey, from being pre-aware of life insurance to being capable of a choice. Previous studies of

financial decisions label this the “Decision States Model (DSM)”(Bateman et al., 2014;Bauer

et al., 2022). The DSM adapts the concept of a consumer funnel. In a consumer funnel,

1152 BATEMAN ET AL.

consumers move from exploration of, to a decision (or “conversion”) about, a product, by expo-

sure to, or search for, information (Kireyev et al., 2016;Wijaya,2015). Consumer characteristics,

including dispositional innovativeness and market mavenism, (Hoffmann & Broekhuizen, 2010;

Steenkamp et al., 1999) motivate the one's acquisition of “literacy”(Pappalardo, 2012) about a

complex financialproduct (ASIC & AFM, 2019). Our application of the DSM contributes by show-

ing where and what types of consumers cluster in their progress toward a decision. We go further

than simply identifying mistakes (Schwarcz, 2010). Our results enable more effective interven-

tions by insurance providers, financial advisers and consumer regulators.

Secondly, we extend studies on personal values, or transcendent motivational life goals (Lee

et al., 2019; Schwartz, 1992). We show that values partly explain why consumers may or may

not progress through the decision states and choose suitable life cover. A small number of stud-

ies have already considered the role of cultural values in financial product and service choices,

including life insurance (De Beckker et al., 2020). One of the earliest is Zelizer (1978) who

argued for the role of shared cultural values in the evolution of the life insurance market in the

United States. The reluctance of the US consumers to purchase life insurance was in part

because “putting death on the market offended a system of values that upheld the sanctity of

human life and its incommensurability”(Zelizer, 1978, p. 594). Similarly, Chui and Kwok

(2008) found a positive association between life insurance consumption in countries with

higher individualism relative to collectivism (Hofstede, 1980). Pollock et al. (2019) used the

(lack of development) of the life insurance market in China in the first half of the 19th century

to illustrate the influence of shared cultural values. We extend these studies by considering indi-

vidual, or personal, values rather than cultural values. To reconcile the roles of cultural and

individual values, we adopt Schwartz's framework. Schwartz proposes that cultural values are a

latent construct, external to the individual. Cultural values will be expressed in social institu-

tions that mediate cultural influence on individuals (Schwartz, 2014).

4

We build on Nepomuceno and Porto (2010), who found that the personal value of Conserva-

tion, based on conformity to social pressure from close family, was significant in the purchase

of life insurance. They used a Brazilian version of the Schwartz Value Survey and drew a sam-

ple of Brazilian bank employees.

5

We extend the results of Nepomuceno and Porto (2010)in

several ways. Firstly, we elicit personal values using the robust best-worst scaling approach of

Lee et al. (2019).

6

Secondly, we identify and quantify how personal values affect life insurance

decision states rather than attitudes to life insurance in general. One path of influence is via dis-

positional innovativeness (Hoffmann & Broekhuizen, 2010; Steenkamp et al., 1999). Another is

as an antidote to mortality salience: whether orientation toward personal values of self-

transcendence will help consumers overcome their (proximal) distaste for learning about a

product that is triggered by death, and possibly combine with a (distal) need for an enduring

identity, to motivate progress through the stages of insurance decision making (Greenberg

et al., 1997; James III, 2016; Pyszczynski et al., 1999; Salisbury & Nenkov, 2015).

Our consideration of personal values shows that factors beyond those linked to the expected

utility paradigm are important to purchases of financial products and services (Brighetti

et al., 2014; Hoffmann & Broekhuizen, 2009; Kumar, 2019; Zietz, 2003). At the same time, we

extend studies of influences on consumer financial vulnerability and well-being (CFPB, 2015;

Hoffmann & McNair, 2019). We thus establish evidence for a connection between personal

values and decision states that suppliers or regulators can use to tailor interventions to con-

sumers at different stages of search and choice. For example, insurers can prime those personal

values associated with higher decision states in advertising and product information in print

and on websites.

BATEMAN ET AL.1153