Miscalibrated knowledge and personal insurance holdings: The role of engagement and default exposure

This study examines the relationship between insurance literacy, perceived understanding, knowledge miscalibration, and personal insurance holdings in Australia. Using survey data collected in 2024, the study adopts a portfolio perspective across Life, Total and Permanent Disability, Trauma, and Income Protection insurance. It develops a miscalibration framework that distinguishes knowledgeable, uninformed, overconfident, and underconfident individuals by comparing actual and perceived understanding of personal insurance. The analysis further investigates whether insurance holdings reflect passive default exposure through superannuation or active consumer engagement. The findings show that knowledgeable individuals hold more personal insurance than miscalibrated groups, while differences among uninformed, overconfident, and underconfident individuals are limited. Perceived understanding is more strongly associated with insurance holdings than formal insurance literacy, highlighting the importance of product awareness. Gender differences are also evident, with males generally holding more insurance. In the Australian superannuation context, active engagement with cost, cash flow, and procedural considerations is more strongly associated with insurance holdings than default exposure. The study contributes to household finance and insurance literacy literature by demonstrating that calibrated understanding and engagement are central to personal insurance participation.