%0 Report %D 2002 %T The Adequacy of Life Insurance %A Gokhale, Jagadeesh %A Laurence J. Kotlikoff %K Insurance %X Life insurance is easy to purchase. It s relatively cheap. And it s vital to most survivors. Hence, economic theory delivers one and only one prescription about life insurance -- buy it, if you need it. But knowing whether you need life insurance is not so easy. And knowing that you need to buy life insurance and actually doing so are two different things. The truth is that no one likes to think about dying. No one likes to talk about dying. No one likes to pay premiums for an event, in this case dying early, that may never occur. And no one likes to spend time with life insurance agents. Economic man thus meets psychological man head on when it comes to life insurance decisions. The chance to pit economics against psychology is just one reason economists have been studying the determinants and adequacy of life insurance holdings for close to two decades. The other is the significant policy implications of potentially finding that insurance holdings are inadequate for a major segment of the population. Unlike much economic research that delivers at least two answers to any given question, the research on insurance adequacy produces a single clear and consistent message. When it comes to buying life insurance, economic man is making major mistakes. While many households are buying reasonable amounts of life insurance, others are buying far too little, and others are buying too much. For those who are buying no life insurance whatsoever, despite their considerable need, psychology appears to be trumping economics. For those who are buying life insurance, but the wrong amounts, bad financial advice may to blame. %B TIAA-CREF Institue Working Paper %I Boston University, Dept. of Economics %G eng %L wp_2002/Kotlikoff.pdf %4 Life Insurance/determinants and adequacy %$ 10552 %R http://dx.doi.org/10.2139/ssrn.325721 %0 Report %D 1999 %T The Adequacy of Life Insurance: Evidence from the Health and Retirement Survey %A Bernheim, B. Douglas %A Forni, Lorenzo %A Gokhale, Jagadeesh %A Laurence J. Kotlikoff %K Insurance %X This study examines the adequacy of life insurance among married American couples approaching retirement. It improves upon previous work in two ways. First, it is based on recent, high quality data (the 1992 Health and Retirement Survey with matched Social Security earnings histories). Second, it employs new financial planning software to evaluate the life insurance needs of each household. This software embodies an elaborate life- cycle planning model that accounts for a broad array of demographic, economic, and financial characteristics. We find that a sizable minority of couples in the HRS sample are significantly underinsured. Almost one third of wives and more than 10 percent of husbands would have suffered living standard reductions of 20 percent or more had their spouses died in 1992. Underinsurance tends to be more common among low income households, couples with asymmetric earnings, younger households, couples with dependent children, and non-whites. In general, households with greater vulnerabilities do not appear to compensate adequately for these vulnerabilities through greater life insurance holdings. Among some groups, the frequency of underinsurance exceeds two-thirds, and the frequency of severe underinsurance (a reduction in living standard of 40 percent or greater) exceeds one-quarter. %I NBER %G eng %U http://papers.nber.org/papers/W7372 %4 Life Insurance %$ 6569