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Life insurance, precautionary saving and contingent bequest

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  • Chang, Fwu-Ranq

Abstract

Purchasing life insurance is for the welfare of young children, par-ticularly preteens, who are liquidity constrained. In this paper, we present a life cycle model of life insurance that takes into account the ages of these young beneciaries. We show that, as the child ages, the need for protection is reduced and, consequently, the size of contingent bequest may shrink. The demand for life insurance is positively related to the number, age differentials, living standards, and the time needed to reach adulthood. Also, the breadwinner's life-time uncertainty and the unfairness of the insurance market encourage precautionary saving.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 48 (2004)
Issue (Month): 1 (July)
Pages: 55-67

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Handle: RePEc:eee:matsoc:v:48:y:2004:i:1:p:55-67

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Web page: http://www.elsevier.com/locate/inca/505565

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  12. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
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  16. Chang, Fwu-Ranq, 1991. "Uncertain Lifetimes, Retirement and Economic Welfare," Economica, London School of Economics and Political Science, vol. 58(230), pages 215-32, May.
  17. Lewis, Frank D, 1989. "Dependents and the Demand for Life Insurance," American Economic Review, American Economic Association, vol. 79(3), pages 452-67, June.
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