Risky Insurance: Life-Cycle Insurance Portfolio Choice with Incomplete Markets

Joseph S. Briggs, Ciaran Rogers and Christopher Tonetti

No 35122, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study consumer demand for savings, life insurance, annuities, and long-term care insurance using novel survey data and a structural life-cycle model. We document that individuals perceive substantial insurance nonpayment risk, and these beliefs predict ownership. Embedding elicited beliefs into an incomplete-markets model alongside additional real-world insurance features, we match empirical patterns of low participation. Relative to a no-insurance benchmark, access to existing imperfect insurance reduces median wealth by 16% and generates a modest 0.6% welfare gain. Eliminating nonpayment risk would substantially increase insurance ownership, yield a further 11% decline in median savings, and generate an additional 1.7% welfare gain.

JEL-codes: D14 E21 G22 (search for similar items in EconPapers)
Date: 2026-04
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