Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests

This paper assesses the validity of the claim that elderly individuals with strong bequest motives purchase term life insurance to offset mandatory annuitization by the Social Security System. The annuity offset model is re-examined using better, more recent data. Results demonstrate that the elderly do not hold life insurance to offset mandated annuitization. All four of the major implications of the annuity offset model fail empirical testing. The model does not explain life insurance behavior of elderly households and the fact that many elderly households own term life insurance is not a sufficient reason to argue against mandatory annuitization of retirement resources. Further research is being conducted using the AHEAD data in order to find other explanations for why the elderly hold life insurance.