Purchasing life insurance to reach a bequest goal |
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| Institution: | 1. Department of Mathematics, University of Michigan, Ann Arbor, MI, 48109, USA;2. Department of Mathematics, York University, Toronto, Ontario, Canada M3J 1P3;1. School of Risk and Actuarial Studies and CEPAR, UNSW Business School, The University of New South Wales, Sydney, NSW 2052, Australia;2. Lingnan (University) College, Sun Yat-sen University, Guangzhou 510275, PR China;1. University of Technology, Sydney, The Finance Discipline Group, UTS Business School, PO Box 123, Broadway, NSW, 2007, Australia;2. Auckland University of Technology, Department of Finance, Private Bag 92006, 1142 Auckland, New Zealand;3. Università degli Studi di Padova, Dipartimento di Matematica, Via Trieste 63, Padova, Italy;4. Devinci Finance Lab, Pôle Universitaire Léonard de Vinci, 92916 Paris La Défense Cedex, France;5. Quanta Finanza srl, Via Cappuccina 40, Mestre (Venezia), Italy;1. Warsaw School of Economics, Institute of Econometrics, Department of Probabilistic Methods, Niepodległości 162, Warsaw 02-554, Poland;2. University of Ulm, Institute of Insurance Science, Helmholtzstrasse 20, 89069 Ulm, Germany;1. School of Finance and Statistics, East China Normal University, Shanghai 200241, China;2. Department of Applied Finance and Actuarial Studies, Faculty of Business and Economics, Macquarie University, Sydney, NSW 2109, Australia;3. School of Risk and Actuarial Studies and CEPAR, Australian School of Business, University of New South Wales, Sydney, NSW 2052, Australia |
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| 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 from a job, 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. |
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| Keywords: | Term life insurance Whole life insurance Bequest motive Deterministic control Non-forfeiture value |
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