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.
- Publication:
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arXiv e-prints
- Pub Date:
- February 2014
- DOI:
- 10.48550/arXiv.1402.5300
- arXiv:
- arXiv:1402.5300
- Bibcode:
- 2014arXiv1402.5300B
- Keywords:
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- Quantitative Finance - Portfolio Management
- E-Print:
- Final version. To appear in in "Insurance: Mathematics and Economics". Keywords: Term life insurance, whole life insurance, bequest motive, deterministic control