Life insurance demand under health shock risk

Christoph Hambel; Holger Kraft; Lorenz S. Schendel; Mogens Steffensen

doi:10.1111/jori.12149

Life insurance demand under health shock risk

Christoph Hambel, Holger Kraft, Lorenz S. Schendel, Mogens Steffensen

Research output: Contribution to journal › Article › Scientific › peer-review

20 Citations (Scopus)

Abstract

This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.

Original language	English
Pages (from-to)	1171-1202
Number of pages	32
Journal	Journal of Risk and Insurance
Volume	84
Issue number	4
DOIs	https://doi.org/10.1111/jori.12149
Publication status	Published - Dec 2017
Externally published	Yes

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title = "Life insurance demand under health shock risk",

abstract = "This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.",

author = "Christoph Hambel and Holger Kraft and Schendel, {Lorenz S.} and Mogens Steffensen",

note = "Funding Information: We thank anonymous referees and Keith Crocker (the editor) for very helpful comments. All remaining errors are of course our own. Christoph Hambel, Holger Kraft, and Lorenz S. Schendel gratefully acknowledge research and financial support from the Center of Excellence SAFE, funded by the State of Hessen initiative for research LOEWE. Christoph Hambel and Holger Kraft gratefully acknowledge financial support by Deutsche Forschungsgemeinschaft (DFG). The authors thank the Frankfurt Cloud for access to high‐performance virtual servers.",

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AU - Schendel, Lorenz S.

AU - Steffensen, Mogens

N1 - Funding Information: We thank anonymous referees and Keith Crocker (the editor) for very helpful comments. All remaining errors are of course our own. Christoph Hambel, Holger Kraft, and Lorenz S. Schendel gratefully acknowledge research and financial support from the Center of Excellence SAFE, funded by the State of Hessen initiative for research LOEWE. Christoph Hambel and Holger Kraft gratefully acknowledge financial support by Deutsche Forschungsgemeinschaft (DFG). The authors thank the Frankfurt Cloud for access to high‐performance virtual servers.

PY - 2017/12

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N2 - This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.

AB - This article studies the consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock. The family can buy long-term life insurance that can only be revised at significant costs. A revision is only possible as long as the insured person is healthy. The combination of unspanned labor income and the stickiness of insurance decisions reduces the long-term insurance demand significantly. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from long-term life insurance markets altogether.

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DO - 10.1111/jori.12149

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VL - 84

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JO - Journal of Risk and Insurance

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ER -

Life insurance demand under health shock risk

Abstract

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