Abstract
Financial illiteracy and underinsurance have been revealed to be critical issues in the financial sustainability and well-being of families. However, studies show that financial literacy does not necessarily translate to insurance literacy, and more specialized education can improve insurance literacy. Little is known about the impact of insurance illiteracy on the inclination to seek and retain insurance. Considering this gap, our study aimed to investigate the direct and indirect effect of consumers’ insurance literacy on purchasing decisions of personal insurance. The study sample consists of middle-class consumers in Sri Lanka. A total of 300 valid questionnaires were collected and analyzed using a variance-based structural equation modeling. The results revealed that insurance literacy directly, and through its mediators of trust, perceived benefits, and favorable attitudes towards insurance, impacts the behavioral intention, significantly and positively. The cognition-based trust affected the purchase intention only through its mediators. Additionally, there is a significant difference between those who are having and not having insurance in terms of insurance literacy, trustfulness, and perceived value of insurance. This study is relatively a pioneer study, and findings will be of great interest to academicians and policymakers to encourage personal insurance as a tool in achieving financial security and well-being.
Highlights
Technological advancements and market innovations have created a sophisticated financial industry, in which a wide range of providers offer a broad spectrum of complex financial products and services [1]
Improved financial literacy is the key to informed decisions, protected consumers, financial independence, and peace of mind
Respondents’ educational background relating to insurance, risk management, or personal finance management shows that only 28.2% of the respondents have such formal education, while 71.8% do not have any formal education of insurance or risk management or personal finance handling
Summary
Technological advancements and market innovations have created a sophisticated financial industry, in which a wide range of providers offer a broad spectrum of complex financial products and services [1]. These advances have given people more options and superior flexibility in creating financial plans that best suit their needs. It is often the case that not all groups in society have the required literacy to understand information about different financial products, which may be vital for their financial wellbeing One such financial product is personal insurance [2]. The types of personal insurance include life insurance, total and permanent disability (TPD), income protection (IP), and critical illness covers (trauma cover)
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