Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests

This chapter reexamines the annuity offset model using more recent and better data than were available for the original empirical tests. The four empirical implications of the model tested are: that no individual would hold both term life insurance and private annuities; that the level of Social Security benefits and term life insurance ownership should be negatively correlated; that term life insurance should behave as an inferior good because it is a negative annuity and annuities are normal goods; and that individuals who hold term life insurance must have a Social Security benefit in excess of desired retirement consumption. The chapter presents results that are inconsistent with all four of these empirical implications, and thus concludes that life insurance coverage is not a good indicator of the extent of over-annuitization. A commentary is also included at the end of the chapter.