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|Title: ||Health and Mortality Delta: Assessing the Welfare Cost of Household
|Authors: ||Nieuwerburgh, Stijn Van|
Koijen, Ralph S. J.
|Issue Date: ||9-Jan-2012|
|Series/Report no.: ||FIN-11-055|
|Abstract: ||We develop a pair of risk measures for the universe of health and
longevity products that includes life insurance, annuities, and
supplementary health insurance. Health delta measures the differential
payoff that a policy delivers in poor health, while mortality delta
measures the differential payoff that a policy delivers at death.
Optimal portfolio choice simplifies to the problem of choosing a
combination of health and longevity products that replicates the optimal
exposure to health and mortality delta. For each household in the Health
and Retirement Study, we calculate the health and mortality delta
implied by its ownership of life insurance, annuities including private
pensions, supplementary health insurance, and long-term care insurance.
For the median household aged 51 to 58, the lifetime welfare cost of
market incompleteness and suboptimal portfolio choice is 28 percent of
|Appears in Collections:||Finance Working Papers|
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