Abstract: "We use a new survey to document significant perceived nonpayment risk in annuity, life insurance, and long-term care insurance markets. That is, people perceive a substantial risk that insurance will not pay out when it should. In preliminary statistical analysis, we find that nonpayment risk significantly predicts insurance product ownership, and that annuity and long-term care insurance ownership would be approximately twice as high if products were perceived as risk-free. To interpret our measures, we develop a new life-cycle model of the joint demand for these three products plus a risk free bond that allows for uninsurable nonpayment risk as well as incomplete markets along other dimensions. We find that these risks significantly decrease insurance demand. After accounting for nonpayment risk and other incomplete market features, the welfare cost of "under-insurance" is much smaller than a complete-market analysis suggests."
Organizers: Robert Richmond (firstname.lastname@example.org) and Arpit Gupta (email@example.com)
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