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The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Survey of Consumer Finances

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  • B. Douglas Bernheim
  • Katherine Grace Carman
  • Jagadeesh Gokhale
  • Laurence J. Kotlikoff

Abstract

Using the 1995 Survey of Consumer Finances and an elaborate life-cycle model, we quantify the potential financial impact of each individual's death on his or her survivors, and we measure the degree to which life insurance moderates these consequences. Life insurance is essentially uncorrelated with financial vulnerability at every stage of the life cycle. As a result, the impact of insurance among at-risk households is modest, and substantial uninsured vulnerabilities are widespread, particularly among younger couples. Roughly two-thirds of poverty among surviving women and more than one-third of poverty among surviving men results from a failure to insure survivors against an undiminished living standard. We also identify a systematic gender bias: for any given level of financial vulnerability, couples provide significantly more protection for wives than for husbands.

Suggested Citation

  • B. Douglas Bernheim & Katherine Grace Carman & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2001. "The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Survey of Consumer Finances," NBER Working Papers 8544, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8544
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    References listed on IDEAS

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    1. Alan J. Auerbach & Laurence J. Kotlikoff, 1985. "Life Insurance of the Elderly: Adequacy and Determinants," NBER Working Papers 1737, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jiang Cheng & Lu Yu, 2019. "Life and health insurance consumption in China: demographic and environmental risks," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(1), pages 67-101, January.
    2. Streeter, Jialu L., 2020. "Gender differences in widowhood in the short-run and long-run: Financial, emotional, and mental wellbeing," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    3. Louis Kaplow, 2005. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 23-34, July.
    4. Krupa S. Viswanathan & Jean Lemaire & Kate Withers & Katrina Armstrong & Agnieszka Baumritter & John C. Hershey & Mark V. Pauly & David A. Asch, 2007. "Adverse Selection in Term Life Insurance Purchasing due to the BRCA1/2 Genetic Test and Elastic Demand," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(1), pages 65-86, March.
    5. repec:dau:papers:123456789/11143 is not listed on IDEAS
    6. Joel Slemrod, 2003. "Thanatology and Economics: The Behavioral Economics of Death," American Economic Review, American Economic Association, vol. 93(2), pages 371-375, May.
    7. repec:dau:papers:123456789/11142 is not listed on IDEAS
    8. Yijia Lin & Martin F. Grace, 2007. "Household Life Cycle Protection: Life Insurance Holdings, Financial Vulnerability, and Portfolio Implications," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(1), pages 141-173, March.
    9. 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.

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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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