IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Individual Welfare Gains from Deferred Life-Annuities under Stochastic Mortality

Listed author(s):
  • Post Thomas

    (Maastricht University)

At the end of the deferment period a deferred annuity’s policyholder can choose between receiving annuity payouts or the capital accumulated. Considering stochastic mortality improvements, this is a valuable option for the policyholder. Whenever mortality improves less than expected at contract inception, the policyholder will choose the lump-sum and buy an annuity at current market prices. Otherwise, he will retain the more favorable deferred annuity. We use a life-cycle model and calculate the welfare gains of deferred annuities considering stochastic mortality improvements. Deferred annuities are found to substantially improve the welfare of an individual. The option feature is especially valuable in the presence of adverse selection problems. The results derived are relevant for individual retirement planning and pension system design.

If 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.

File URL: https://www.degruyter.com/view/j/apjri.2012.6.issue-2/2153-3792.1154/2153-3792.1154.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by De Gruyter in its journal Asia-Pacific Journal of Risk and Insurance.

Volume (Year): 6 (2012)
Issue (Month): 2 (June)
Pages: 1-26

as
in new window

Handle: RePEc:bpj:apjrin:v:6:y:2012:i:2:n:2
Contact details of provider: Web page: https://www.degruyter.com

Order Information: Web: https://www.degruyter.com/view/j/apjri

References listed on IDEAS
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.:

as
in new window


  1. Jason S. Scott & John G. Watson & Wei‐Yin Hu, 2011. "What Makes a Better Annuity?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(1), pages 213-244, 03.
  2. Joachim Inkmann & Paula Lopes & Alexander Michaelides, 2011. "How Deep Is the Annuity Market Participation Puzzle?," Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 279-319.
  3. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
  4. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
  5. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
  6. Friedberg Leora & Webb Anthony, 2007. "Life Is Cheap: Using Mortality Bonds to Hedge Aggregate Mortality Risk," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-33, July.
  7. Amy Finkelstein & James Poterba, 2004. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 183-208, February.
  8. John Chalmers & Jonathan Reuter, 2012. "How Do Retirees Value Life Annuities? Evidence from Public Employees," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2601-2634.
  9. Gong, Guan & Webb, Anthony, 2010. "Evaluating the Advanced Life Deferred Annuity -- An annuity people might actually buy," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 210-221, February.
  10. Helmut Gründl & Thomas Post & Roman N. Schulze, 2006. "To Hedge or Not to Hedge: Managing Demographic Risk in Life Insurance Companies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 19-41.
  11. Boyle, Phelim & Hardy, Mary, 2003. "Guaranteed Annuity Options," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 33(02), pages 125-152, November.
  12. Horneff, Wolfram & Maurer, Raimond & Rogalla, Ralph, 2010. "Dynamic portfolio choice with deferred annuities," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2652-2664, November.
  13. Takayama, Noriyuki, 2011. "Securing Lifelong Retirement Income: Global Annuity Markets and Policy," OUP Catalogue, Oxford University Press, number 9780199594849 edited by Mitchell, Olivia S. & Piggott, John.
  14. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," Review of Economic Studies, Oxford University Press, vol. 32(2), pages 137-150.
  15. Lee Lockwood, 2012. "Bequest Motives and the Annuity Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 226-243, April.
  16. Carter, Lawrence R. & Lee, Ronald D., 1992. "Modeling and forecasting US sex differentials in mortality," International Journal of Forecasting, Elsevier, vol. 8(3), pages 393-411, November.
  17. Brouhns, Natacha & Denuit, Michel & Vermunt, Jeroen K., 2002. "A Poisson log-bilinear regression approach to the construction of projected lifetables," Insurance: Mathematics and Economics, Elsevier, vol. 31(3), pages 373-393, December.
  18. Cairns, Andrew J.G. & Blake, David & Dowd, Kevin, 2006. "Pricing Death: Frameworks for the Valuation and Securitization of Mortality Risk," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 36(01), pages 79-120, May.
  19. Horneff, Wolfram J. & Maurer, Raimond H. & Mitchell, Olivia S. & Stamos, Michael Z., 2009. "Asset allocation and location over the life cycle with investment-linked survival-contingent payouts," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1688-1699, September.
  20. Cannon, Edmund & Tonks, Ian, 2008. "Annuity Markets," OUP Catalogue, Oxford University Press, number 9780199216994.
  21. Bauer, Daniel & Kling, Alexander & Russ, Jochen, 2008. "A Universal Pricing Framework for Guaranteed Minimum Benefits in Variable Annuities," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 38(02), pages 621-651, November.
  22. Roman N. Schulze & Thomas Post, 2010. "Individual Annuity Demand Under Aggregate Mortality Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 423-449.
  23. Bauer Daniel & Weber Frederik, 2008. "Assessing Investment and Longevity Risks within Immediate Annuities," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-24, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:6:y:2012:i:2:n:2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.