Life cycle insurance, bequest motives and annuity loads

10 Oct 2023  ·  Aleksandar Arandjelović, Geoffrey Kingston, Pavel V. Shevchenko ·

We investigate insurance purchases when bequest motives are age-varying and life insurance and life annuities both carry loads. The existing life cycle literature assumes bequests are normal goods without being either necessities or luxuries. Much of the literature also assumes implicitly that life annuity loads are negative. A key finding of the literature is that the demand for life insurance and the demand for life annuities are symmetrical. It is optimal to buy life-contingent insurance throughout life, even under loads. A life annuity phase backs directly onto a life insurance phase. We find that realistic examples with positive loads on both products reveal up to two distinct periods of non-participation, one in midlife and the other adjoining the maximum age. We highlight examples with necessity bequests during child-rearing years and luxury bequests thereafter. This set of assumptions explains why a substantial demand for life insurance during child-rearing years can co-exist with negligible demand for life annuities later on. A realistic 18% load on both products generates this outcome.

PDF Abstract
No code implementations yet. Submit your code now

Tasks


Datasets


  Add Datasets introduced or used in this paper

Results from the Paper


  Submit results from this paper to get state-of-the-art GitHub badges and help the community compare results to other papers.

Methods


No methods listed for this paper. Add relevant methods here