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Determinants of the Stated Probability of Purchase for Longevity Insurance

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Abstract

We study the determinants of the stated probability of purchase for a deferred annuity that pays out at age 80 or 85, which we reframe as “longevity insurance”, using the Survey of Household Financial and Risk Management. Our results indicate that younger cohorts and women are more likely to express a desire to purchase longevity insurance in the future. The stated probability of purchase for longevity insurance was lower for respondents with greater home equity and higher coefficients of relative risk aversion. Our results may be of particular interest to policymakers, annuity companies and retirement plan providers.

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Notes

  1. Ruffing (2012).

  2. Arias et al. (2010).

  3. Arias (2007).

  4. Yaari (1965); Davidoff et al. (2005).

  5. The annuity quotes are from CANNEX. The assumed purchase date was 19 November 2014.

  6. James and Song (2001); Beatrice et al. (2004); Johnson et al. (2004); Benartzi et al. (2011).

  7. Arizona Governing Comm. for Tax Deferred Annuity and Deferred Compensation Plans v. Norris (1983).

  8. Turner and McCarthy (2013).

  9. Brown et al. (2008).

  10. See Milevsky and Young (2007); Horneff et al. (2009, 2010).

  11. Cappelletti et al. (2013).

  12. Brown (2001).

  13. Brown et al. (2015); Andersson and Svensson (2008); Frederick (2005).

  14. Scott and Garen (1994).

  15. Ando and Modigliani (1963).

  16. Meara et al. (2008).

  17. Inkmann et al. (2011).

  18. Chandler and Kapelner (2013).

  19. Berinsky et al. (2011).

  20. Paolacci et al. (2010).

  21. Barsky et al. (1997).

  22. Cappelletti et al. (2013); Bütler and Teppa (2007).

  23. As a result of our sample being highly educated and women, we ran separate regressions by groups (highly educated and women) and found no differences in the results. This suggests that our skewed sample is not biasing the results.

  24. Beshears et al. (2014).

  25. Jousten (2001).

  26. Guillemette et al. (2015).

  27. www.treasury.gov/press-center/press-releases/Pages/jl2448.aspx.

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Author information

Authors and Affiliations

  1. Department of Personal Financial Planning, University of Missouri, 239 Stanley Hall, Columbia, 65211, MO, U.S.A.

    Michael A Guillemette

  2. Department of Economics and Finance, College of Business Administration, University of Texas Rio Grande Valley, 1201 W. University Drive, Edinburg, 78539, TX, U.S.A.

    Terrance K Martin Jr

  3. Finance Department, Erivan K. Haub School of Business, Saint Joseph’s University, 5600 City Avenue, Philadelphia, 19131, PA, U.S.A.

    Benjamin F Cummings

  4. Department of Personal Financial Planning, Texas Tech University, 1301 Akron, Lubbock, 79409, TX, U.S.A.

    Russell N James III

Authors
  1. Michael A Guillemette
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  2. Terrance K Martin Jr
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  3. Benjamin F Cummings
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  4. Russell N James III
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Appendix

Appendix

Table A1

Table A1 Operationalisation of independent variables used in the analysis
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Table A2

Table A2 Linear probability regression estimates
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Guillemette, M., Martin, T., Cummings, B. et al. Determinants of the Stated Probability of Purchase for Longevity Insurance. Geneva Pap Risk Insur Issues Pract 41, 4–23 (2016). https://doi.org/10.1057/gpp.2015.26

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  • DOI: https://doi.org/10.1057/gpp.2015.26

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