TY  - UNPD
A1  - Kraft, Holger
A1  - Schendel, Lorenz S.
A1  - Steffensen, Mogens
T1  - Life insurance demand under health shock risk : [Version: 7 February 2014]
T2  - SAFE working paper series ; No. 40
N2  - This paper studies the life cycle consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock that significantly increases his probability of dying. The family can buy term life insurance with realistic features. In particular, the available contracts are long term so that decisions are sticky and can only be revised at significant costs. Furthermore, a revision is only possible as long as the insured person is healthy. A second important and realistic feature of our model is that the labor income of
the wage earner is unspanned. We document that the combination of unspanned labor income and the stickiness of insurance decisions reduces the insurance demand significantly. This is because an income shock induces the need to reduce the insurance coverage, since premia become less affordable. 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 life insurance markets altogether.
T3  - SAFE working paper - 40 
KW  - Health shocks
KW  - Portfolio choice
KW  - Term life insurance
KW  - Mortality risk
KW  - Labor income risk
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33150
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-331503
UR  - http://ssrn.com/abstract=2392384
IS  - Version: 7 February 2014
SP  - 1
EP  - 39
PB  - SAFE
CY  - Frankfurt am Main
ER  -