Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests

Jeffrey Brown

No 7193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides evidence against the hypothesis that elderly individuals with strong bequest motives purchase term life insurance to offset mandatory annuitization by the existing Social Security system. Using new data on elderly households, this study is able to examine ownership of pure term life insurance separately from whole life, or cash-value, policies. This is an important distinction in the Annuity Offset Model' because the central implication is that term insurance is purchased in order to undo' excessive government annuitization in the form of Social Security, while whole life policies among the elderly primarily consist of tax deferred savings. Evidence is presented that many households simultaneously choose to hold privately purchased annuities and term life insurance, a choice that is inconsistent with the notion that these individuals are over-annuitized. Results also indicate that the hypothesized positive relationship between term insurance ownership and Social Security benefits does not hold once one analyzes term separately from cash value policies. Previous empirical results appear to have been overly favorable to the Annuity Offset Model due to the inability to adequately account for the strong correlation between whole life insurance ownership and Social Security benefits, a correlation that can be attributed to tax-deferred savings and attempts to protect human capital during one's younger working life. Because these findings suggest that households are not seeking to undo' Social Security for bequest reasons, these results have implications for the current debate over annuitization options in an individual accounts retirement system.

JEL-codes: H55 J14 (search for similar items in EconPapers)
Date: 1999-06
New Economics Papers: this item is included in nep-ias
Note: AG PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published as Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests , Jeffrey Brown. in Themes in the Economics of Aging , Wise. 2001

Downloads: (external link)
http://www.nber.org/papers/w7193.pdf (application/pdf)

Related works:
Chapter: Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests (2001)
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:nbr:nberwo:7193

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7193

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().