Abstract
A vast literature explores life insurance from the perspective of a single individual. This paper considers an alternative approach by developing and testing a theoretical model for term life insurance demand by married households over age 50. Allowing for joint, cooperative decision making between spouses, empirical findings show that increasing the relative bargaining power of husbands results in reductions in the size of the insurance policies covering the lives of husbands in a manner consistent with theory. The intuition is that households reallocate resources to states of nature that husbands place greater weight by reducing the amount spent on purchasing insurance covering the lives of husbands. In contrast, marital bargaining power generally has a substantially smaller effect in the demand for life insurance covering the lives of wives. However, when bargaining power is shifted towards husbands, life insurance coverage increases among the subsample of wives who provide a large proportion of total household income and are more likely to require protection against lost future income in the event of death.
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Notes
The model in this paper adapts the collective bargaining approach in Lundberg et al. (2003). They analyze a two stage decision making model where dropping the assumption of commitment allows the utility weights to change between periods.
Summary statistics are similar for the respective sample of husbands and wives in households where the wife provided a final say report.
Life table data is obtained from the Human Mortality Database.
Missing values for final say responses resulted in differences in sample sizes. As a result, all bargaining power effects were re-estimated after omitting observations from households in which both spouses did not provide a final say response, in order to generate a common sample. Results are substantively similar to those presented in this paper.
Age was excluded as a covariate in (15) because of collinearity with survival probability.
Supplemental analyses were not performed for the subsamples of husbands and wives living in households where ϕ < 0 because of limited sample size.
Estimation of the empirical model over the subsample of respondents with no children over the age of 18 produced similar results.
Applying the additional earnings criteria produced bargaining power estimates even larger in magnitude. The coefficient for the husband holding final say is −$83,339 (SE = $30,202) and the coefficient for equal say is −$56,573 (SE = $27,868).
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Acknowledgments
This paper is based on a part of my doctoral dissertation accepted by University of Washington, Seattle. I acknowledge the U.S. Department of Veterans Affairs Health Services Research and Development postdoctoral fellowship. I also acknowledge Claus Portner and Richard Startz for their guidance as well as Yoram Barzel, Neil Bruce, Seik Kim, Shelly Lundberg, Robert Plotnick and other University of Washington economics seminar participants for their helpful comments. I am also grateful to the editor and two anonymous referees for their comments on earlier versions of this paper. Errors and omissions are my responsibility.
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Wong, E.S. Marital bargaining in the demand for life insurance: evidence from the Health and Retirement Study. Rev Econ Household 13, 243–268 (2015). https://doi.org/10.1007/s11150-013-9193-x
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DOI: https://doi.org/10.1007/s11150-013-9193-x