Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice

Ralph S.J. Koijen, Stijn Van Nieuwerburgh, Motohiro Yogo

Research output: Contribution to journalArticle

20 Scopus citations

Abstract

We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

Original languageEnglish (US)
Pages (from-to)957-1010
Number of pages54
JournalJournal of Finance
Volume71
Issue number2
DOIs
StatePublished - Apr 1 2016

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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