The Adequacy of Life Insurance

TIAA-CREF Institute, Working Paper No. RD72

15 Pages Posted: 27 Jan 2003

See all articles by Jagadeesh Gokhale

Jagadeesh Gokhale

Cato Institute

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Date Written: July 2002


In this paper, we use an economic approach to determine households' life insurance needs. In the economic approach, life insurance needs and spending targets are simultaneously determined by smoothing households' living standards over their life cycles and ensuring comparable living standards for potential survivors. We demonstrate that life insurance recommendations provided by the economic approach are considerably different from those provided by the conventional approach. When comparing recommended with actual life insurance holdings, we find that under-insurance is widespread among secondary earners in married couples. We also identify a systematic gender bias: for any given level of financial vulnerability, couples provide significantly more protection for wives than for husbands.

JEL Classification: D10, D31, G22

Suggested Citation

Gokhale, Jagadeesh and Kotlikoff, Laurence J., The Adequacy of Life Insurance (July 2002). TIAA-CREF Institute, Working Paper No. RD72, Available at SSRN: or

Jagadeesh Gokhale

Cato Institute ( email )

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Laurence J. Kotlikoff (Contact Author)

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Gaidar Institute for Economic Policy

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