Can the Life Insurance Market Provide Evidence for a Bequest Motive?

Authors

  • Joachim Inkmann,

    1. Joachim Inkmann is in the Department of Finance, Level 12, 198 Berkeley Street, University of Melbourne, Victoria 3010, Australia, and Netspar. Alexander Michaelides is in the Department of Public and Business Administration, University of Cyprus, P.O. Box 20537, 1678, Lefkosia, Cyprus and CEPR, FMG, and Netspar. The authors can be contacted via e-mail: jinkmann@unimelb.edu.au. and a.michaelides@ucy.ac.cy, respectively.
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  • Alexander Michaelides

    1. Joachim Inkmann is in the Department of Finance, Level 12, 198 Berkeley Street, University of Melbourne, Victoria 3010, Australia, and Netspar. Alexander Michaelides is in the Department of Public and Business Administration, University of Cyprus, P.O. Box 20537, 1678, Lefkosia, Cyprus and CEPR, FMG, and Netspar. The authors can be contacted via e-mail: jinkmann@unimelb.edu.au. and a.michaelides@ucy.ac.cy, respectively.
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  • We thank Netspar for a grant to pursue this project. We appreciate helpful comments from Jiajia Cui, Theo Nijman, Blake Phillips, Joshua Rauh, Peter Schotman, Ah Boon Sim, two anonymous referees, and participants at the SED 2011 meetings in Ghent, the FMA 2011 Asian Conference in Queenstown, the Netspar 2010 Pension Workshop in Zurich, and the 2010 AFBC in Sydney.

Abstract

Using U.K. microeconomic data, we analyze the empirical determinants of participation in the life insurance market. We find that term insurance demand is positively correlated with measures of bequest motives like being married, having children, and/or subjective measures of strong bequest motives. We then show that a life-cycle model of life insurance demand, saving, and portfolio choice can rationalize quantitatively the data in the presence of a bequest motive. These findings provide evidence supporting the presence of a bequest motive.

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