NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Incidental Bequests and the Choice to Self-Insure Late-Life Risks

Lee M. Lockwood

NBER Working Paper No. 20745
Issued in December 2014, Revised in March 2018
NBER Program(s):Aging, Public Economics

Despite facing significant uncertainty about their lifespans and health care costs, most retirees do not buy annuities or long-term care insurance. In this paper, I find that retirees' saving and insurance choices are highly inconsistent with standard life cycle models in which people care only about their own consumption but match well models in which bequests are luxury goods. Bequest motives tend to reduce the value of insurance by reducing the opportunity cost of precautionary saving. The results suggest that bequest motives significantly increase saving and significantly decrease purchases of long-term care insurance and annuities.

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Document Object Identifier (DOI): 10.3386/w20745

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