Uncertain Bequest Needs and Long-Term Insurance Contracts

Wenan Fei, Claude Fluet and Harris Schlesinger

Cahiers de recherche from CIRPEE

Abstract: 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 make up of his or her future family, much less their financial needs. 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 two equivalent long-term life insurance contracts that are incentive compatible and achieve 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 such contracts and we show how third-party financial products, although beneficial to the individual in the short run, can be welfare decreasing over one's lifetime.

Keywords: Life insurance; Bequest needs; Asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 D91 G22 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Uncertain Bequest Needs and Long-Term Insurance Contracts (2015)
Working Paper: Uncertain Bequest Needs and Long-Term Insurance Contracts (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0742

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