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Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice

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  • Ralph Koijen
  • Stijn Van Nieuwerburgh
  • Motohiro Yogo

Abstract

We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

Suggested Citation

  • Ralph Koijen & Stijn Van Nieuwerburgh & Motohiro Yogo, 2011. "Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice," NBER Working Papers 17325, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17325
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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