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This paper examines variable annuities (VA) that include a guaranteed minimum withdrawal lifetime benefit (GWLB). For a risk-averse retiree, we show that the basic VA/GWLB is unlikely to induce systematic withdrawals early in retirement, while it also provides useful protection in the case of extreme longevity. The typical VA/GWLB increases utility compared to not annuitizing, though its money's worth ratio is slightly lower than not annuitizing. The individual's portfolio mix elected within the VA has the greatest impact on the valuation of the product, mattering much more than fees or mortality. Having a GWLB prompts riskier portfolio choices up to the point where insurers must restrict the risky share so as to protect solvency. AbstractThis paper examines variable annuities (VA) that include a guaranteed minimum withdrawal lifetime benefit (GWLB). For a risk-averse retiree, we show that the basic VA/GWLB is unlikely to induce systematic withdrawals early in retirement, while it also provides useful protection in the case of extreme longevity. The typical VA/GWLB increases utility compared to not annuitizing, though its money's worth ratio is slightly lower than not annuitizing. The individual's portfolio mix elected within the VA has the greatest impact on the valuation of the product, mattering much more than fees or mortality. Having a GWLB prompts riskier portfolio choices up to the point where insurers must restrict the risky share so as to protect solvency.A variable annuity (VA) provides retirees with both an insurance-protected retirement annuity and a flexibly-managed investment portfolio. 1 Retirees value the annuity because it provides downside risk protection, while at the same time, holding equities offers exposure to possibly greater returns. Though some critics have cited complexity and high fees as disadvantages of the VA product, 2 they remain quite popular among U.S. households. For instance, in Q1 2012, policyholders held $1.61 trillion in VAs; new sales in Q4 2011, at $36.2 billion, were almost double the volume of fixed annuity sales ($16.9 billion; IRI (2012)). By the end of 2010, almost half (46%) the assets in VAs belong to Baby Boomers making this cohort the largest owner of VAs, followed by current retirees (35%). 3 The fact that retirees and near-retirees hold such a substantial portion of their assets in VAs motivates the need to

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in SOEPpapers on Multidisciplinary Panel Data Research at DIW BerlinThis series presents research findings based either directly on data from the German SocioEconomic Panel study (SOEP) or using SOEP data as part of an internationally comparable data set (e.g. CNEF, ECHP, LIS, LWS, CHER/PACO). SOEP is a truly multidisciplinary household panel study covering a wide range of social and behavioral sciences: economics, sociology, psychology, survey methodology, econometrics and applied statistics, educational science, political science, public health, behavioral genetics, demography, geography, and sport science.The decision to publish a submission in SOEPpapers is made by a board of editors chosen by the DIW Berlin to represent the wide range of disciplines covered by SOEP. There is no external referee process and papers are either accepted or rejected without revision. Papers appear in this series as works in progress and may also appear elsewhere. They often represent preliminary studies and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be requested from the author directly.Any opinions expressed in this series are those of the author(s) and not those of DIW Berlin.Research disseminated by DIW Berlin may include views on public policy issues, but the institute itself takes no institutional policy positions. Abstract:This paper empirically assesses the selection effects and determinants of the demand for supplemental health insurance that covers hospital and dental benefits in Germany. Our representative dataset provides doctor-diagnosed indicators of the individual's health status, risk attitude, demand for medical services and insurance purchases in other lines of insurance as well as rich demographic and socioeconomic information. Controlling for a wide range of individual preferences, we find evidence of adverse selection for individuals aged 65 and younger for hospital coverage despite initial individual underwriting by insurers. The reverse is true for individuals older than 65; individuals with supplemental hospital coverage are healthier on average. In addition, insurance affinity and income are the most important drivers of the demand for both types of coverage. JEL-Classification: D82, G22, I11

Economic decisions frequently entail choices in the presence of risk. Decisions to purchase insurance, to save, to invest, and to pursue an education are all choices that may involve some degree of risk, just to name a few. We analyze the impact of changes in family structure on individuals' willingness to take risk (WTR). We find evidence that separating from a partner is associated with an increase in the WTR; while the birth of a first child is associated with a decrease in the WTR. Interestingly, these changes are temporary and the WTR returns to the level observed before the family event within 1–2 years following the event. Married individuals are more risk averse and this does not change with the passage of time of the actual wedding. Providing long term care is also associated with a higher WTR.