Life Annuity Insurance versus Self-Annuitization: An Analysis from the Perspective of the Family
Journal
Risk management and insurance review
ISSN
1098-1616
ISSN-Digital
1540-6296
Type
journal article
Date Issued
2005-04-01
Author(s)
Abstract
When comparing investment in an immediate life annuity with a payout-equivalent investment fund decumulation plan (self-annuitization), previous research focused on shortfall probabilities of self-annuitization. Chances of self-annuitization (i.e., bequests) typically have not been addressed. We argue that heirs might be willing to bear the shortfall risk of the retiree's self-annuitization since they might benefit from a bequest. Our article proposes a "family strategy" in which heirs receive the remaining investment fund on the retiree's death, but are obliged to finance the retiree if the fund becomes exhausted. We estimate the chance and risk profile of this "family strategy" from the heirs' perspective using German capital and annuity market data. We show that in many cases, our "family strategy" offers enormous chance potential with low shortfall risk. Finally, we discuss some limitations of the proposed "family strategy" when putting the concept into practice.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Blackwell
Publisher place
Malden, Mass.
Volume
8
Number
2
Start page
239
End page
255
Pages
17
Subject(s)
Division(s)
Eprints ID
16560