Price Elasticity of Demand for Term Life Insurance and Adverse Selection
45 Pages Posted: 25 Aug 2003 Last revised: 15 Aug 2022
Date Written: August 2003
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.
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