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

64 Pages Posted: 29 Aug 2011

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); New York University Stern School of Business, Department of Finance

Motohiro Yogo

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2011

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.

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 (August 2011). NBER Working Paper No. w17325. Available at SSRN: https://ssrn.com/abstract=1918655

Ralph S. J. Koijen (Contact Author)

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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New York University Stern School of Business, Department of Finance ( email )

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Motohiro Yogo

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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