Price Elasticity of Demand for Term Life Insurance and Adverse Selection

45 Pages Posted: 25 Aug 2003 Last revised: 22 May 2012

See all articles by Mark V. Pauly

Mark V. Pauly

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Kate H. Withers

Bank of America

Krupa S. Viswanathan

Temple University - Department of Risk, Insurance, and Healthcare

Jean Lemaire

University of Pennsylvania - Statistics Department

John C. Hershey

University of Pennsylvania - Operations & Information Management Department

Katrina Armstrong

University of Pennsylvania - Perelman School of Medicine

David A. Asch

University of Pennsylvania - The Wharton School

Date Written: August 2003

Abstract

This paper provides an empirical estimate of price' and risk' elasticities of demand for term life insurance for those who purchase some insurance. It finds that the elasticity with respect to changes in premiums is generally higher than the elasticity with respect to changes in risk. It also finds that the elasticity, in the range of -0.3 to -0.5, is sufficiently low that adverse selection in term life insurance is unlikely to lead to a death spiral and may not even lead to measured effects of adverse selection on total purchases.

Suggested Citation

Pauly, Mark V. and Withers, Kate H. and Viswanathan, Krupa S. and Lemaire, Jean and Hershey, John C. and Armstrong, Katrina and Asch, David A., Price Elasticity of Demand for Term Life Insurance and Adverse Selection (August 2003). NBER Working Paper No. w9925, Available at SSRN: https://ssrn.com/abstract=437494

Mark V. Pauly (Contact Author)

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
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Philadelphia, PA 19104-6358
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Kate H. Withers

Bank of America ( email )

201 N. Tryon Street
Charlotte, NC 28255
United States

Krupa S. Viswanathan

Temple University - Department of Risk, Insurance, and Healthcare ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Jean Lemaire

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

John C. Hershey

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

Katrina Armstrong

University of Pennsylvania - Perelman School of Medicine ( email )

423 Guardian Drive
1233 Blockley Hall
Philadelphia, PA 19104
United States

David A. Asch

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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