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We examine the effect of labor income and health uncertainty on the optimal choices of policyholders with Guaranteed Minimum Death Benefits embedded in Variable Annuities. These choices are determined in the context of a utility-based life cycle model including bequest motives and optimal term life purchases. We then determine risk-neutral prices from the perspective of the issuing financial institutions. In contrast to previous studies which do not include income and health uncertainty, we find that very risk-averse policyholders in weak job markets would be willing to pay the risk-neutral price in order to receive these benefits. This occurs because an unemployed individual with a low account balance would be unwilling to pay for term insurance, but has precommitted to pay the now small GMDB fees in exchange for the death benefits.
|Publication status||Published - 26 Jul 2016|
|Event||20th International Congress on Insurance: Mathematics and Economics - Georgia State University, Atlanta, United States|
Duration: 24 Jul 2016 → 27 Jul 2016
|Conference||20th International Congress on Insurance: Mathematics and Economics|
|Period||24/07/16 → 27/07/16|
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- 1 Finished
Optimal Allocation and Consumption - A Dynamic Analysis on Variable Annuities (基於變動年金動態研究下的最優消費和投資選擇)
1/01/14 → 31/12/16
Project: Grant Research