Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93145
Authors: 
Schendel, Lorenz S.
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 44
Abstract: 
I analyze a critical illness insurance in a consumption-investment model over the life cycle. I solve a model with stochastic mortality risk and health shock risk numerically. These shocks are interpreted as critical illness and can negatively affect the expected remaining lifetime, the health expenses, and the income. In order to hedge the health expense effect of a shock, the agent has the possibility to contract a critical illness insurance. My results highlight that the critical illness insurance is strongly desired by the agents. With an insurance profit of 20%, nearly all agents contract the insurance in the working stage of the life cycle and more than 50% of the agents contract the insurance during retirement. With an insurance profit of 200%, still nearly all working agents contract the insurance, whereas there is little demand in the retirement stage.
Subjects: 
Health shocks
Health expenses
Labor income risk
Stochastic mortality risk
Portfolio choice
JEL: 
D91
G11
I13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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