Life Insurance Demand Under Health Shock Risk

TY - JOUR

T1 - Life Insurance Demand Under Health Shock Risk

AU - Hambel, Christoph

AU - Kraft, Holger

AU - Schendel, Lorenz S.

AU - Steffensen, Mogens

PY - 2017/12

Y1 - 2017/12

N2 - This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.

AB - This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.

U2 - 10.1111/jori.12149

DO - 10.1111/jori.12149

M3 - Journal article

SN - 0022-4367

VL - 84

SP - 1171

EP - 1202

JO - Journal of Risk and Insurance

JF - Journal of Risk and Insurance

IS - 4

ER -