Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice

Ralph Koijen, Stijn Van Nieuwerburgh, Motohiro Yogo

NBER Working Paper No. 17325
Issued in August 2011, Revised in December 2015
NBER Program(s):The Program on Aging, The Asset Pricing Program, The Health Economics Program

We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

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Document Object Identifier (DOI): 10.3386/w17325

Published: Ralph S.J. Koijen & Stijn Nieuwerburgh & Motohiro Yogo, 2016. "Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice," Journal of Finance, American Finance Association, vol. 71(2), pages 957-1010, 04. citation courtesy of

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