Purchasing Life Insurance to Reach a Bequest Goal
Abstract
We determine how an individual can use life insurance to meet a bequest goal. We assume that the individual's consumption is met by an income, such as a pension, life annuity, or Social Security. Then, we consider the wealth that the individual wants to devote towards heirs (separate from any wealth related to the afore-mentioned income) and find the optimal strategy for buying life insurance to maximize the probability of reaching a given bequest goal. We consider life insurance purchased by a single premium, with and without cash value available. We also consider irreversible and reversible life insurance purchased by a continuously paid premium; one can view the latter as (instantaneous) term life insurance.
Cite
@article{arxiv.1402.5300,
title = {Purchasing Life Insurance to Reach a Bequest Goal},
author = {Erhan Bayraktar and David Promislow and Virginia Young},
journal= {arXiv preprint arXiv:1402.5300},
year = {2014}
}
Comments
Final version. To appear in in "Insurance: Mathematics and Economics". Keywords: Term life insurance, whole life insurance, bequest motive, deterministic control