Accounting for Life Insurance Holdings: Evidence from German Socio-Economic Panel Studies

Abstract:     
Life insurance is used to insure against the risk of premature death in order to smooth the consumption. This paper studies the demand for life insurance holdings in Germany within an economic framework. We examine the driving forces behind the life insurance demand with the data from German Socio-Economic Panel Studies. After correcting for the autocorrelation of disturbances in our unbalanced panel data, we find that the bequest motives are quite strong among the households with children in holding life insurances; being unemployed has significant negative effect; higher marginal tax rates are related to higher demand for life insurances due to the tax incentive scheme in Germany. The self-reported risk attitude captures the individual heterogeneity in our panel dataset. We also evaluate the recent abolishment of tax advantages on life insurance contracts signed after Year 2004 and find positive anticipation effects in year 2003 and year 2004 after the beginning of the policy discussion.

Number of Pages in PDF File: 27

Keywords: life insurance, savings, unbalanced panel

JEL Classification: D91, C33

working papers series