Incidental Bequests and the Choice to Self-Insure Late-Life Risks
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.
This paper previously circulated under the titles “Incidental Bequests: Bequest Motives and the Choice to Self-Insure Late-Life Risks” and “The Importance of Bequest Motives: Evidence from Long-term Care Insurance and the Pattern of Saving.” For helpful comments, I thank the co-editor, Luigi Pistaferri, three anonymous referees, and Gadi Barlevy, Marco Bassetto, Gary Becker, Jeffrey Brown, Norma Coe, Mariacristina De Nardi, Daniel Fetter, Amy Finkelstein, Eric French, Lars Hansen, Erik Hurst, John Jones, Ralph Koijen, Karen Kopecky, David Laibson, Robin Lumsdaine, Brian Melzer, Casey Mulligan, Kevin Murphy, Derek Neal, Matthew Notowidigdo, Emily Oster, Svetlana Pashchenko, James Poterba, Devesh Raval, Mark Shepard, Jonathan Skinner, Heidi Williams, Motohiro Yogo, and many seminar participants. I thank Max Rong for excellent research assistance. I am grateful to the National Institute on Aging for financial support (training grant 5T32-AG00243 and grant T32-AG000186). The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Lee M. Lockwood, 2018. "Incidental Bequests and the Choice to Self-Insure Late-Life Risks," American Economic Review, vol 108(9), pages 2513-2550. citation courtesy of