NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Lee M. Lockwood

NBER Working Paper No. 20745
Issued in December 2014, Revised in August 2016
NBER Program(s):Aging, Public Economics

Despite facing significant uncertainty about how long they will live and how much costly health care they will require, few retirees buy life annuities or long-term care insurance. Low rates of long-term care insurance coverage are often interpreted as evidence against the importance of bequest motives since failing to buy insurance exposes bequests to significant risk. In this paper, however, I find that low rates of long-term care insurance coverage, especially in combination with the slow rate at which many retirees draw down their wealth, constitute evidence in favor of bequest motives. Retirees' saving and long-term care 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. Buying insurance reduces one's need to engage in precautionary saving, which is most valuable to individuals without bequest motives who wish to consume all of their wealth. The results suggest that bequest motives significantly increase saving and significantly decrease purchases of long-term care insurance and annuities.

download in pdf format
   (548 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20745

Users who downloaded this paper also downloaded* these:
Venti and Wise w20740 The Long Reach of Education: Early Retirement
LaFave and Thomas w20702 Extended Families and Child Well-being
Ameriks, Briggs, Caplin, Shapiro, and Tonetti w20973 Long-Term-Care Utility and Late-in-Life Saving
Sloan, Robinson, and Eldred w20679 Does Private Information Influence Automobile Insurance Purchase Decisions?
De Nardi, French, and Jones w15149 Why do the Elderly Save? The Role of Medical Expenses
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us