Why Aren't More Families Buying Life Insurance?

Chambers, Matthew; Schlagenhauf, Don; Young, Eric R.

doi:10.2139/ssrn.1780297

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Why Aren't More Families Buying Life Insurance?

Center for Retirement Research at Boston College Working Paper No. 2011-7

49 Pages Posted: 7 Mar 2011

See all articles by Matthew Chambers

Eric R. Young

University of Virginia

Date Written: January 15, 2011

Abstract

This paper explores life insurance holdings from a general equilibrium perspective. Drawing on the data explored in Chambers, Schlagenhauf, and Young (2003), we calibrate an overlapping generation’s life cycle economy with incomplete asset markets to match facts regarding the uncertainty of income and demographics. We then estimate that life insurance holdings for the purpose of smoothing family consumption are so large that they constitute a puzzle from the perspective of standard economic theory. Furthermore, the welfare gains from a life insurance market are concentrated in the minds of households who use the real world market very little.

Keywords: Life Insurance, Consumption-Savings Decisions, Incomplete Markets

JEL Classification: D12, D91, J17

Suggested Citation: Suggested Citation

Chambers, Matthew and Schlagenhauf, Don and Young, Eric R., Why Aren't More Families Buying Life Insurance? (January 15, 2011). Center for Retirement Research at Boston College Working Paper No. 2011-7, Available at SSRN: https://ssrn.com/abstract=1780297 or http://dx.doi.org/10.2139/ssrn.1780297