1. The Life Insurance Demand in a Heterogeneous-Agent Life Cycle Economy
Ning Wang, Ph.D.
Assistant Professor of Finance
University of North Georgia, Dahlonega, GA

2. TJe fgsd
2019/5/26
Motivations
In the insurance market, each life insurance policy is purchased on one household member’s life.
The national survey data (SCF) does not contain the division of life insurance holdings between couples.
Considering the vast majority of married couples have two wage earners in the US, it is essential to study the division of life insurance holdings between working couples.
In literature, the effect of one’s earnings on the spouse’s life insurance holdings remains a subject of debate.
Few paper has incorporated joint decisions into a life cycle model to study the risk sharing effect on life insurance holdings between couples.
dfdgfffgsd

3. TJe fgsd
2019/5/26
Main Questions
This paper proposes a life cycle model with uncertainty of demographics and income to explore the decision-making of life insurance holdings for different types of households through their lifetime.
Obtains the optimal amount of individual life insurance by age and gender for the purpose of lifetime utility maximization.
Explores how demographic characteristics and economic factors can affect life insurance demand.
dfdgfffgsd

4. Outline Motivations and Main Questions Literature Review Main Findings
TJe fgsd
2019/5/26
Outline
Motivations and Main Questions
Literature Review
Main Findings
Model Construction and Calibrations
Model Results
Conclusions and Future Directions
dfdgfffgsd

5. Literature Review Burnett and Palmer (1984) Chambers et al. (2003)
TJe fgsd
2019/5/26
Literature Review
Burnett and Palmer (1984)
Chambers et al. (2003)
Lin and Grace (2007)
Low (2005)
Fitzgerald (1987)
Gandolfi and Miners (1996)
Luciano et al. (2016)
Chambers et al. (2009, 2011)
Nishiyama and Smetters (2005)
Nishiyama (2010)
dfdgfffgsd

6. TJe fgsd
2019/5/26
Main Findings
The paper contributes to study individual life insurance demand, and finds that the effect of one’s earnings on the spouse’s life insurance depends on the interrelation of their future earnings under mortality risk.
The results show that single-parent households peak earlier than the couple households.
The results present that life insurance demand is positively related to the number of children and income while ambiguously related to wealth.
The results indicate that life insurance demand of a household is dominantly determined by financial vulnerability at its early ages, and by financial supports needed and premiums at its old ages.
dfdgfffgsd

7. Model · Heterogeneous Households
TJe fgsd
2019/5/26
Model · Heterogeneous Households
Household age
The number of children and labor income calibrated are related to household age.
Working abilities
They are assumed to follow the Markov process.
Household marital status
Couple household if m=1, Single-father household if m=2,
Single-mother household if m=3, and Children-only household if m=4.
Beginning-of-period wealth
It changes in accord with household saving decision and life insurance payments due to the change of marital status in last period.
dfdgfffgsd

8. Model · Utility Functions
TJe fgsd
2019/5/26
Model · Utility Functions
Utility functions of single-parent households
Child-adult equivalency factor is ½;
is the index of the economy scale between 0 and 1.
dfdgfffgsd

9. Model · Optimization Problem
TJe fgsd
2019/5/26
Model · Optimization Problem
dfdgfffgsd

10. Calibration · the Number of Children
TJe fgsd
2019/5/26
Calibration · the Number of Children
Assume all households have the same number of children at each age
dfdgfffgsd

11. Calibration · State Transition Function
Working-ability transition function
Calibrated by Nishiyama and Smetters (2005) and Nishiyama (2010)
Marital status transition process

12. Result · Household Life Insurance Demand
TJe fgsd
2019/5/26
Result · Household Life Insurance Demand
dfdgfffgsd

13. Result · Life Insurance and Risk Aversion

14. Result · Life Insurance and Mortality Shock

15. Result · Life Insurance and the Number of Children
TJe fgsd
2019/5/26
Result · Life Insurance and the Number of Children
dfdgfffgsd

16. Result · Life Insurance and Wealth & Income

17. Result · Life Insurance and Wage Shock (Benchmark)
TJe fgsd
2019/5/26
Result · Life Insurance and Wage Shock (Benchmark)
dfdgfffgsd

18. Result · Life Insurance and Wage Shock (Experiment I)
TJe fgsd
2019/5/26
Result · Life Insurance and Wage Shock (Experiment I)
dfdgfffgsd

19. Result · Life Insurance and Wage Shock (Experiment II)
TJe fgsd
2019/5/26
Result · Life Insurance and Wage Shock (Experiment II)
dfdgfffgsd

20. Conclusions and Future Directions
TJe fgsd
2019/5/26
Conclusions and Future Directions
The paper discusses the determinants of life insurance demand in different types of households by providing some insights into the life cycle relationship between their life insurance holdings and household features.
The paper explores the impact of wage shock on the division of life insurance between couples, and contributes to understanding the risk sharing effect on life insurance demand within a household.
One of future directions is to discuss the amount and timing puzzles by comparing model results with the SCF data.
This study can also be extended to conduct further research on life insurance demand by adding heath shock risk into a life cycle model.
dfdgfffgsd

21. TJe fgsd
2019/5/26
Contact Information:
Ning Wang, Assistant Professor of Finance
Department of Economics and Finance
Mike Cottrell College of Business
82 College Circle, NOC 117
University of North Georgia, Dahlonega, GA 30597
Phone: (706)
THANK YOU !
dfdgfffgsd