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Title: Optimal life insurance purchase from a market of several competing life insurance providers
Authors: Mousa, Abdelrahim
Pinheiro, Diogo
Pinto, Alberto
Keywords: Life insurance;Investments - Mathematical models;Life insurance - Purchasing;Stochastic processes - Mathematical models;Dynamic programming
Issue Date: 13-Jan-2016
Publisher: Elsevier ScienceDirect
Series/Report no.: Insurance: Mathematics and Economics;67
Abstract: We consider the problem faced by a wage-earner with an uncertain lifetime having to reach decisions concerning consumption and life-insurance purchase, while investing his savings in a financial market comprised of one risk-free security and an arbitrary number of risky securities whose prices are determined by diffusive linear stochastic differential equations. We assume that life-insurance is continuously available for the wage-earner to buy from a market composed of a fixed number of life-insurance companies offering pairwise distinct life-insurance contracts. We characterize the optimal consumption, investment and life-insurance selection and purchase strategies for the wage-earner with an uncertain lifetime and whose goal is to maximize the expected utility obtained from his family consumption, from the size of the estate in the event of premature death, and from the size of the estate at the time of retirement. We use dynamic programming techniques to obtain an explicit solution in the case of discounted constant relative risk aversion (CRRA) utility functions.
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