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Life Insurance of the Elderly: Adequacy and Determinants

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  • Alan J. Auerbach
  • Laurence J. Kotlikoff

Abstract

Despite a general reduction in poverty among the aged, roughly one third of elderly nonmarried women are officially poor. Many of these women are widows.The fact that poverty rates are significantly larger for widows than for married women suggests that many households may fail to buy sufficient life insurance.This paper considers the adequacy and determinants of life insurance among the elderly. Its principal conclusions are:(1) Combined private and public life insurance is inadequate for a significant minority of elderly households;(2) Of those elderly households in which the husband's future income representsa significant fraction of total household resources, roughly half are inadequately insured;(3) Households do not significantly offset Social Security's provision of survivor insurance by reducing their private purchase of life insurance; and(4) The actual determinants of the purchase of life insurance appear to differ greatly from those predicted by economic theory.

Suggested Citation

  • Alan J. Auerbach & Laurence J. Kotlikoff, 1985. "Life Insurance of the Elderly: Adequacy and Determinants," NBER Working Papers 1737, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1737
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    References listed on IDEAS

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    1. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    2. Kotlikoff, Laurence J & Spivak, Avia & Summers, Lawrence H, 1982. "The Adequacy of Savings," American Economic Review, American Economic Association, vol. 72(5), pages 1056-1069, December.
    3. B. Douglas Bernheim, 1987. "Dissaving after Retirement: Testing the Pure Life Cycle Hypothesis," NBER Chapters, in: Issues in Pension Economics, pages 237-280, National Bureau of Economic Research, Inc.
    4. B. Douglas Bernheim, 1984. "Life Cycle Annuity Valuation," NBER Working Papers 1511, National Bureau of Economic Research, Inc.
    5. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    6. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December.
    2. Jeffrey Brown, 2001. "Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests," NBER Chapters, in: Themes in the Economics of Aging, pages 91-126, National Bureau of Economic Research, Inc.
    3. Steven J. Haider & Alison Jacknowitz & Robert F. Schoeni, 2003. "The Economic Status of Elderly Divorced Women," Working Papers wp046, University of Michigan, Michigan Retirement Research Center.
    4. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2001. "The mismatch between life insurance holdings and financial vulnerabilities: evidence from the Health and Retirement Survey," Working Papers (Old Series) 0109, Federal Reserve Bank of Cleveland.
    5. Bernheim, B Douglas, 1991. "How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 899-927, October.
    6. B. Douglas Bernheim, 2000. "How Much Should Americans Be Saving for Retirement?," American Economic Review, American Economic Association, vol. 90(2), pages 288-292, May.
    7. B. Douglas Bernheim & Katherine Grace Carman & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2001. "The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Survey of Consumer Finances," NBER Working Papers 8544, National Bureau of Economic Research, Inc.
    8. Willman, Alpo, 2007. "Sequential optimization, front-loaded information, and U.S. consumption," Working Paper Series 765, European Central Bank.
    9. Douglas Holtz-Eakin & John W. R. Phillips & Harvey S. Rosen, 2001. "Estate Taxes, Life Insurance, And Small Business," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 52-63, February.
    10. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2003. "The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Health and Retirement Study," American Economic Review, American Economic Association, vol. 93(1), pages 354-365, March.
    11. Jagadeesh Gokhale & Laurence J. Kotlikoff & Mark J. Warshawsky, 1999. "Comparing the Economic and Conventional Approaches to Financial Planning," NBER Working Papers 7321, National Bureau of Economic Research, Inc.
    12. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1999. "The adequacy of life insurance: evidence from the health and retirement survey," Working Papers (Old Series) 9914, Federal Reserve Bank of Cleveland.
    13. Alan J. Auerbach & Laurence J. Kotlikoff, 1989. "How Rational Is the Purchase of Life Insurance?," NBER Working Papers 3063, National Bureau of Economic Research, Inc.

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