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Life Insurance Inadequacy - Evidence From a Sample of Older Widows

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Author Info

  • Alan J. Auerbach
  • Laurence Kotlikoff

Abstract

This paper studies the changes in income experienced by older women when their husbands die. The data used are the Retirement History Survey. The six waves of this survey provide information on roughly 1300 women who became widowed during the ten year period of the survey, 1960-1979. The findings indicate that about one third of new widows experience a substantial reduction (25 percent or greater) in their living standards when their husbands die. The reduction in living standard associated with the husband's death is more severe for younger widows and widows with greater income pre-widowhood. Couples could insure against severe reductions in income of widows by purchasing more life insurance. These findings lead, therefore, to the conclusion reached in previous studies by the authors and other researchers, namely that many couples fail to purchase enough life insurance to prevent a sharp drop in the wife's consumption if her husband dies. This conclusion raises the question of the role of the government in requiring the purchase of life insurance by couples, through the social security system's survivor insurance. The strong and uniform evidence on the pattern and level of life insurance purchases has implications for the scale of social security survivor benefits and the appropriate mix of total social security benefits between survivor and nonsurvivor benefits.

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File URL: http://www.nber.org/papers/w3765.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3765.

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Date of creation: Jul 1991
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Handle: RePEc:nbr:nberwo:3765

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Cited by:
  1. Roger Ibbotson & Peng Chen & Moshe Milevsky & Xingnong Zhu, 2005. "Human Capital, Asset Allocation, and Life Insurance," Yale School of Management Working Papers amz2513, Yale School of Management, revised 01 Nov 2008.
  2. James, Estelle, 1999. "Coverage under old-agesecurity programs and protection for the uninsured - What are the issues?," Policy Research Working Paper Series 2163, The World Bank.
  3. B. Douglas Bernheim & Katherine Grace Carman & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2002. "The mismatch between life insurance holdings and financial vulnerabilities: evidence from the Survey of Consumer Finances," Working Paper 0201, Federal Reserve Bank of Cleveland.
  4. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1999. "The adequacy of life insurance: evidence from the health and retirement survey," Working Paper 9914, Federal Reserve Bank of Cleveland.
  5. B. Douglas Bernheim & Solange Berstein, 2002. "Saving and Life Insurance Holdings at Boston University – A Unique Case Study," Working Papers Central Bank of Chile 161, Central Bank of Chile.
  6. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2001. "The mismatch between life insurance holdings and financial vulnerabilities: evidence from the Health and Retirement Survey," Working Paper 0109, Federal Reserve Bank of Cleveland.

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