Socioeconomic Determinants of Demand for Life Insurance in Pakistan: A Time-Series Analysis

Abstract

This study examines the determinants of life insurance demand in Pakistan using time series data from 1985 to 2023. The objective is to analyze the short- and long-term relationship between the demand for life insurance and socioeconomic factors. The study finds that the net premium insurance amount, real GDP per capita, and population are stationary at first difference, while the interest rate, savings, and inflation are stationary at the level. The ARDL (1, 3, 2, 3, 3, 3) model is selected based on the Akaike information criterion. The Bound F-test confirms the existence of a long-term relationship between the variables. In the short-run, the interest rate has an insignificant positive relationship with life insurance demand at first difference; however, it has a significant negative relationship at the first and second legs. Real GDP per capita has a significant positive relationship with life insurance demand, while population and savings are significantly and positively associated with life insurance demand. Inflation has a significant positive impact on life insurance demand. The error correction term is significantly negative, indicating the adjustment towards the long-run equilibrium. In the long-run, interest rate, population, and real GDP per capita positively and significantly affect life insurance demand, while savings and inflation have a negative and significant impact.