Financial Literacy as a Predictor of Insurance Participation: Evidence from an Emerging Market

Abstract

This study investigates whether financial literacy predicts the likelihood of purchasing insurance, addressing research gaps in emerging markets where financial access often exceeds capability. Using a publicly available dataset of 20,000 individuals, logistic regression models were estimated with insurance purchase as the binary outcome. After data cleaning, outlier management, and variable standardization, the final analytical sample consisted of 18,500 individuals, of whom 42% reported holding insurance. Results show that financial literacy exerts a significant and positive influence on insurance uptake: each one-point increase in literacy raised the odds of purchasing insurance by about 2.8%. Sensitivity analysis confirmed that financial literacy was the most decisive predictor, as excluding it reduced predictive accuracy by nearly six percentage points. Economic factors such as income and disposable income also played important roles, while age showed a modest positive effect and number of dependents exerted a negative influence, reflecting liquidity constraints. Overall, the findings suggest that financial literacy not only complements but can outweigh traditional economic resources in shaping insurance behavior. From a policy perspective, the study underscores the need to strengthen financial education and reduce household-level financial barriers, thereby promoting greater insurance participation and enhancing financial resilience in developing economies.