Disability Risk and the Value of Disability Insurance
In: Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly
AbstractWe estimate consumers%u2019 valuation of disability insurance using a stochastic lifecycle framework in which disability is modeled as permanent, involuntary retirement. We base our probabilities of worklimiting disability on 25 years of data from the Current Population Survey and examine the changes in the disability gradient for different demographic groups over their lifecycle. Our estimates show that a typical consumer would be willing to pay about 5 percent of expected consumption to eliminate the average disability risk faced by current workers. Only about 2 percentage points reflect the impact of disability on expected lifetime earnings; the larger part is attributable to the uncertainty associated with the threat of disablement. We estimate that no more than 20 percent of mean assets accumulated before voluntary retirement are attributable to disability risks measured for any demographic group in our data. Compared to other reductions in expected utility of comparable amounts, such as a reduction in the replacement rate at voluntary retirement or increases in annual income fluctuations, disability risk generates substantially less pre-retirement saving. Because the probability of disablement is small and the average size of the loss %u2014 conditional on becoming disabled %u2014 is large, disability risk is not effectively insured through precautionary saving.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
This chapter was published in:
This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11118.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Amitabh Chandra & Andrew A. Samwick, 2005. "Disability Risk and the Value of Disability Insurance," NBER Working Papers 11605, National Bureau of Economic Research, Inc.
- H0 - Public Economics - - General
- I1 - Health, Education, and Welfare - - Health
- J1 - Labor and Demographic Economics - - Demographic Economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- David H. Autor & Mark G. Duggan, 2003. "The Rise In The Disability Rolls And The Decline In Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 157-205, February.
- Bound, John & Cullen, Julie Berry & Nichols, Austin & Schmidt, Lucie, 2004.
"The welfare implications of increasing disability insurance benefit generosity,"
Journal of Public Economics,
Elsevier, vol. 88(12), pages 2487-2514, December.
- John Bound & Julie Berry Cullen & Austin Nichols & Lucie Schmidt, 2002. "The Welfare Implications of Increasing Disability Insurance Benefit Generosity," NBER Working Papers 9155, National Bureau of Economic Research, Inc.
- John Bound & Julie Berry Cullen & Austin Nichols & Lucie Schmidt, 2002. "The Welfare Implications of Increasing Disability Insurance Benefit Generosity," Department of Economics Working Papers 2002-02, Department of Economics, Williams College.
- R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994.
"Precautionary Saving and Social Insurance,"
NBER Working Papers
4884, National Bureau of Economic Research, Inc.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
- Deaton, A. & Paxson, C., 1993.
"Intertemporal Choice and Inequality,"
168, Princeton, Woodrow Wilson School - Development Studies.
- Heckman, James J. & Robb, Richard Jr., 1985. "Alternative methods for evaluating the impact of interventions : An overview," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 239-267.
- Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528 Elsevier.
- Bruce D. Meyer & Wallace K.C. Mok, 2013.
"Disability, Earnings, Income and Consumption,"
NBER Working Papers
18869, National Bureau of Economic Research, Inc.
- Maegebier, Alexander, 2013. "Valuation and risk assessment of disability insurance using a discrete time trivariate Markov renewal reward process," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 802-811.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.