TY  - JOUR
AU  - Koijen,Ralph
AU  - Nieuwerburgh,Stijn Van
AU  - Yogo,Motohiro
TI  - Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17325
PY  - 2011
Y2  - August 2011
UR  - http://www.nber.org/papers/w17325
L1  - http://www.nber.org/papers/w17325.pdf
N1  - Author contact info:
Ralph Koijen
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-4199
E-Mail: ralph.koijen@chicagobooth.edu

Stijn Van Nieuwerburgh
Stern School of Business
New York University
44 W 4th Street, Suite 9-120
New York, NY 10012
Tel: 646/284-4141
Fax: 646/284-4141
E-Mail: svnieuwe@stern.nyu.edu

Motohiro Yogo
Federal Reserve Bank of Minneapolis
Research Department
90 Hennepin Avenue
Minneapolis, MN 55401-1804
Tel: 612/204-6476
E-Mail: yogo@minneapolisfed.org
AB  - We develop a pair of risk measures for the universe of health and longevity products that includes life insurance, annuities, and supplemental health insurance. Health delta measures the differential payoff that a product delivers in poor health, while mortality delta measures the differential payoff that a product delivers at death. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of health and longevity products. For each household in the Health and Retirement Study, we calculate the health and mortality delta implied by its ownership of life insurance, annuities including private pensions, and long-term care insurance. We then compare them to the optimal health and mortality delta implied by the life-cycle model. For the median household aged 51 to 58, the lifetime welfare cost of market incompleteness and suboptimal insurance choice is 6 percent of total wealth.
ER  -