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

63 Pages Posted: 10 May 2011 Last revised: 24 Dec 2015

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 23, 2016

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.

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

JEL Classification: D14, D91, G11, I13

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 (December 23, 2016). Journal of Finance, Vol. 71, No. 2, 2016, 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: https://ssrn.com/abstract=1714491 or http://dx.doi.org/10.2139/ssrn.1714491

Ralph S. J. Koijen

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Stijn Van Nieuwerburgh

Columbia University Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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ABFER ( email )

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Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

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United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

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