Uncertain Bequest Needs and Long-Term Insurance Contracts

Wenan Fei, Claude Fluet and Harris Schlesinger

Journal of Risk & Insurance, 2015, vol. 82, issue 1, 125-148

Abstract: type="main" xml:lang="en">

We examine how long-term life insurance contracts can be designed to incorporate uncertain future bequest needs. An individual who buys a life insurance contract early in life is often uncertain about the future financial needs of his or her family, in the event of an untimely death. Ideally, the individual would like to insure the risk of having high future bequest needs, but since bequest motives are typically unverifiable, a contract directly insuring these needs is not feasible. We derive a long-term life insurance contract that is incentive compatible and achieves a higher welfare level than the naïve strategy of delaying the purchase of insurance until after one's bequest needs are known. We also examine the welfare effects of our contract and we show how third-party financial products, although beneficial to the individual in the short run, can be detrimental to one's ex ante utility.

Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/ (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Uncertain Bequest Needs and Long-Term Insurance Contracts (2008)
Working Paper: Uncertain Bequest Needs and Long-Term Insurance Contracts (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:82:y:2015:i:1:p:125-148

Ordering information: This journal article can be ordered from
http://www.wiley.com/bw/subs.asp?ref=0022-4367

Access Statistics for this article

Journal of Risk & Insurance is currently edited by Joan T. Schmit

More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().