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Price Elasticity of Demand for Term Life Insurance and Adverse Selection

Author

Listed:
  • Mark V. Pauly
  • Kate H. Withers
  • Krupa Subramanian-Viswana
  • Jean Lemaire
  • John C. Hershey

Abstract

This paper provides an empirical estimate of price' and risk' elasticities of demand for term life insurance for those who purchase some insurance. It finds that the elasticity with respect to changes in premiums is generally higher than the elasticity with respect to changes in risk. It also finds that the elasticity, in the range of -0.3 to -0.5, is sufficiently low that adverse selection in term life insurance is unlikely to lead to a death spiral and may not even lead to measured effects of adverse selection on total purchases.

Suggested Citation

  • Mark V. Pauly & Kate H. Withers & Krupa Subramanian-Viswana & Jean Lemaire & John C. Hershey, 2003. "Price Elasticity of Demand for Term Life Insurance and Adverse Selection," NBER Working Papers 9925, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9925
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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