Journal
JOURNAL OF RISK AND INSURANCE
Volume 84, Issue 4, Pages 1171-1202Publisher
WILEY
DOI: 10.1111/jori.12149
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Funding
- Center of Excellence SAFE
- State of Hessen initiative for research LOEWE
- Deutsche Forschungsgemeinschaft (DFG)
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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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