Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 25, 2015 erstellt
Description:
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. In contrast, 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 policyholders exhibit bounded rationality even in important life time decisions. We provide a behavioral explanation, focusing on the role of financial literacy, individual decision heuristics, and financial advice. In particular, we show that financial literacy and financial advice can mitigate the behavioral temptation to lapse