Marital bargaining in the demand for life insurance: evidence from the Health and Retirement Study

A vast literature explores life insurance from the perspective of a single individual. This paper considers an alternative approach by developing and testing a theoretical model for term life insurance demand by married households over age 50. Allowing for joint, cooperative decision making between spouses, empirical findings show that increasing the relative bargaining power of husbands results in reductions in the size of the insurance policies covering the lives of husbands in a manner consistent with theory. The intuition is that households reallocate resources to states of nature that husbands place greater weight by reducing the amount spent on purchasing insurance covering the lives of husbands. In contrast, marital bargaining power generally has a substantially smaller effect in the demand for life insurance covering the lives of wives. However, when bargaining power is shifted towards husbands, life insurance coverage increases among the subsample of wives who provide a large proportion of total household income and are more likely to require protection against lost future income in the event of death. Copyright Springer Science+Business Media New York 2015