Purchasing Life Insurance to Reach a Bequest Goal

30 Pages Posted: 22 Feb 2014 Last revised: 23 Feb 2014

Erhan Bayraktar

University of Michigan at Ann Arbor - Department of Mathematics

S. D. Promislow

York University - Department of Mathematics & Statistics

V.R. Young

University of Michigan at Ann Arbor - Department of Mathematics

Date Written: February 21, 2014

Abstract

We determine how an individual can use life insurance to meet a bequest goal. We assume that the individual's consumption is met by an income, such as a pension, life annuity, or Social Security. Then, we consider the wealth that the individual wants to devote towards heirs (separate from any wealth related to the afore-mentioned income) and find the optimal strategy for buying life insurance to maximize the probability of reaching a given bequest goal. We consider life insurance purchased by a single premium, with and without cash value available. We also consider irreversible and reversible life insurance purchased by a continuously paid premium; one can view the latter as (instantaneous) term life insurance.

Keywords: Term life insurance, whole life insurance, bequest motive, deterministic control

Suggested Citation

Bayraktar, Erhan and Promislow, S. D. and Young, V.R., Purchasing Life Insurance to Reach a Bequest Goal (February 21, 2014). Available at SSRN: https://ssrn.com/abstract=2399465 or http://dx.doi.org/10.2139/ssrn.2399465

Erhan Bayraktar (Contact Author)

University of Michigan at Ann Arbor - Department of Mathematics ( email )

2074 East Hall
530 Church Street
Ann Arbor, MI 48109-1043
United States

S. D. Promislow

York University - Department of Mathematics & Statistics ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
(416)736-2100, ext. 33767 (Phone)

HOME PAGE: http://starcraft.ccs.yorku.ca/atlas/servlet/atlas/action/AtlasAction/template/person.vm?eventsubmit_

Virginia R. Young

University of Michigan at Ann Arbor - Department of Mathematics ( email )

2074 East Hall
530 Church Street
Ann Arbor, MI 48109-1043
United States
734-764-7227 (Phone)

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