Mortgage Insurance Adoption in the Netherlands

Abstract

Individuals tend to underinsure on low probability, high consequence risks. Using a survey data set from a unique institutional context, we provide an assessment of the underinsurance puzzle by studying mortgage insurance adoption among Dutch homeowners. The results indicate that the demand for mortgage insurance is affected by risk exposure, type of mortgage lender, and the involvement of financial advisors. We document that wealthier and younger mortgagors are more likely to insure. However, locus of control, house price expectations, and precautionary savings are not related to insurance demand. Finally, we find evidence that borrower (over)confidence negatively affects the likelihood that insurance is bought.