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http://ssrn.com/abstract=1714491
 
 

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Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice


Ralph S. J. Koijen


London Business School - Department of Finance; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh


New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Motohiro Yogo


Federal Reserve Bank of Minneapolis

May 21, 2014

Netspar Discussion Paper No. 05/2011-050
Chicago Booth Research Paper No. 11-34
Fama-Miller Working Paper
NYU Working Paper No. FIN-11-055

Abstract:     
We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

Number of Pages in PDF File: 62

Keywords: Annuities, Health insurance, Life-cycle model, Life insurance, Portfolio choice

JEL Classification: D14, D91, G11, I13

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Date posted: May 10, 2011 ; Last revised: May 22, 2014

Suggested Citation

Koijen, Ralph S. J. and Van Nieuwerburgh, Stijn and Yogo, Motohiro, Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice (May 21, 2014). Netspar Discussion Paper No. 05/2011-050; Chicago Booth Research Paper No. 11-34; Fama-Miller Working Paper; NYU Working Paper No. FIN-11-055. Available at SSRN: http://ssrn.com/abstract=1714491 or http://dx.doi.org/10.2139/ssrn.1714491

Contact Information

Ralph S. J. Koijen
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Motohiro Yogo (Contact Author)
Federal Reserve Bank of Minneapolis ( email )
90 Hennepin Avenue
Minneapolis, MN 55401-1804
United States
HOME PAGE: http://https://sites.google.com/site/motohiroyogo/
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