Chapter

Handbook of Insurance

Volume 22 of the series Huebner International Series on Risk, Insurance, and Economic Security pp 901-931

Life Insurance

  • Bertrand VilleneuveAffiliated withCEA and Université de Toulouse

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Abstract

This survey reviews the micro-economic foundations of the analysis of life insurance markets. The first part outlines a simple theory of insurance needs based on the life-cycle hypothesis. The second part builds on contract theory to expose the main issues in life insurance design within a unified framework. We investigate how much flexibility is desirable. Flexibility is needed to accommodate changing tastes and objectives, but it also gives way to opportunistic behaviors from the part of the insurers and the insured. Many typical features of actual life insurance contracts can be considered the equilibrium outcome of this trade-off.

Keywords

Life insurance life cycle flexibility insurance contracts

JEL Classification Numbers

G22 D91 D82