Purchasing life insurance to reach a bequest goal

Erhan Bayraktar, S. David Promislow and Virginia R. Young

Insurance: Mathematics and Economics, 2014, vol. 58, issue C, 204-216

Abstract: We determine how an individual can use life insurance to meet a bequest goal. We assume that the individual’s consumption is met by an income from a job, pension, life annuity, or Social Security. Then, we consider the wealth that the individual wants to devote towards heirs (separate from any wealth related to the afore-mentioned income) and find the optimal strategy for buying life insurance to maximize the probability of reaching a given bequest goal. We consider life insurance purchased by a single premium, with and without cash value available. We also consider irreversible and reversible life insurance purchased by a continuously paid premium; one can view the latter as (instantaneous) term life insurance.

Keywords: Term life insurance; Whole life insurance; Bequest motive; Deterministic control; Non-forfeiture value (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Working Paper: Purchasing Life Insurance to Reach a Bequest Goal (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:58:y:2014:i:c:p:204-216

DOI: 10.1016/j.insmatheco.2014.07.003

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