Dependents and the Demand for Life Insurance

The demand for life insurance by a breadwinner depends on the demographic structure of the household. This relationship is captured by extending Yaari's life insurance framework to include the preferences of other household members explicitly. Life insurance is demanded by the dependents who fa...

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Bibliographic Details
Published in:	The American economic review 1989-06, Vol.79 (3), p.452-467
Main Author:	Lewis, Frank D.
Format:	Article
Language:	eng
Subjects:	Beneficiaries Bequests Children Consumer economics Consumption Death benefits Demand Demographics Dependents Economic models Economic theory Expected utility Families & family life Household consumption Households Insurance industry Insurance premiums Life insurance Lifestyles Parents Present value Risk aversion Social Security benefits Statistical analysis Utility functions
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Summary:	The demand for life insurance by a breadwinner depends on the demographic structure of the household. This relationship is captured by extending Yaari's life insurance framework to include the preferences of other household members explicitly. Life insurance is demanded by the dependents who face an income stream contingent on the lifetime of the breadwinner. This demand for insurance on the breadwinner's life is based on a life-cycle model where income is uncertain. Empirical applications of the model are illustrated using reported life insurance ownership in a 1976 sample of 150 US households. The model and data indicate that Social Security survivors' benefits have had a great impact on life insurance ownership. Increases in survivors' net wealth are almost completely offset by decreases in life insurance holdings. In this regard, Social Security's main impact has been to sharply reduce the holding of privately supplied life insurance.
ISSN:	0002-8282 1944-7981