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|Subject: Re: Optimal level of annuity purchase may b nega||Date: 9/9/2013 9:46 AM|
|Author: Hawkwin||Number: 72772 of 81965|
[intercst:"How do you short an annuity?"
Buy the stock of the insurance companies that issue the most of them?
Per the paper, buy life insurance. Never thought of it that way but it does make sense. From the paper:
Of course, a short position appears to be contrary to conventional wisdom and practice. On one hand,
younger households do hold substantial amounts of life insurance. On the other hand, only about 17%
of individuals between ages 18 and 24 hold individual life insurance policies, increasing to about 26%
between ages 25 and 34 (LIMRA, 2011).27 Moreover, the apparent primary motivation for buying life
insurance is to protect dependents rather than to hedge future health risks (LIMRA, 2012b). In contrast,
in our model, it is optimal for most younger households to short annuities (purchase life insurance),
even if they have no dependents or bequest motives. Hence, in practice, households might be making illinformed
choices or narrowly framing their decisions, consistent with Brown et al. (2008) and Beshears
et al. (2012). Or, the conventional guidance given to households could simply be suboptimal. We leave
that reconciliation to future research. Still, we modestly suggest that the “true annuity puzzle” might
actually be why we do not see more negative annuitization (life insurance) by younger households.
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