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2 - An Introduction to Insurance in Practice and Theory

Published online by Cambridge University Press:  05 February 2013

Howard C. Kunreuther
Affiliation:
University of Pennsylvania
Mark V. Pauly
Affiliation:
University of Pennsylvania
Stacey McMorrow
Affiliation:
The Urban Institute
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Summary

FOUR EXAMPLES OF INSURANCE BEHAVIOR IN PRACTICE

When Judy’s sister discovered she had cancer, Judy was frightened. Their mother had died of cancer and Judy became preoccupied with the possibility that a genetic link might endanger her, too. Not long after her sister’s diagnosis, Judy bought an expensive insurance policy that promised to pay her money on top of any medical benefits if she got cancer (but not if she contracted another disease).

Doug’s new car, an expensive Lexus sports car, was his dream come true. He maintained it meticulously and, thinking ahead, took out an insurance policy on the car with a very low $500 deductible, even though that increased his premium considerably. That way, he figured, repairs to his car would be nearly covered even if someone in a parking lot simply dented his fender. Three months later, Doug’s attention momentarily lapsed when his cell phone rang and he plowed into the car ahead of him at a stoplight. The body shop estimated damages to the Lexus at $1,500, well over Doug’s $500 deductible. Yet Doug chose to pay the entire cost out of pocket, fearful that making a claim would drive his insurance premiums even higher.

Type
Chapter
Information
Insurance and Behavioral Economics
Improving Decisions in the Most Misunderstood Industry
, pp. 11 - 31
Publisher: Cambridge University Press
Print publication year: 2013

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