Life-cycle Consumption in the Presence of Term Life Insurance, Voluntary, Altruistic Bequest, and Uncertain Life Span
Keywords:Life-cycle Model, Term Life Insurance, Bequest, Longevity Risk
In this paper, we extend the inter-temporal consumption model of Yaari in an asymmetric framework with market incompleteness, where agents can only take a long position in life insurance. We study consumption and saving behaviour in the presence of voluntary bequest concerns and term life insurance that can not be resold in the context of life expectancy uncertainty. We provide general insights that do not depend on specific forms of the utility function and risk aversion hypotheses. In particular, our results suggest that such policy leads to variable optimal consumption over time that is still affected by lifetime uncertainty.
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