An Empirical Study on the Policyholder Behavior of Immediate Annuities in Korea (즉시연금보험의 특성과 가입자 선택행동 분석)

Lee Kyonghee (이경희)

An Empirical Study on the Policyholder Behavior of Immediate Annuities in Korea

Journal of Insurance and Finance
2012, 23(1), pp.101-132
Publisher : Korea Insurance Research Institute
Research Area : Social Science > Business Management

Lee Kyonghee ¹

¹보혐연구원

Accredited

ABSTRACT

In this study, we provide an in-depth empirical analysis for the characteristics of policyholders in voluntary immediate annuity market in Korea. We use a unique dataset with more than 14,000 actual choice decisions made by individuals choosing between whole-life annuity option (i.e., mortality cross subsidy to those living longer from those dying earlier) and period certain or interest-only options (i.e., no mortality cross subsidy within group). Our empirical analysis reports four major findings. First, traditional policyholder of immediate annuity is a woman of her late 60s and the average premium size is 180million KRW (median 100 million KRW). The average monthly annuity benefits of whole-life annuity option are 1,120 thousand KRW (median 594 thousand KRW). Secondly, the share of whole-life annuity option is much lower than that of the period certain and interest-only option:more than two-thirds of policyholders select an interest-only option due to the tax-exempt benefits and asset management in retirement. Thirdly,standard explanations such as asymmetric information and risk aversion are confirmed in the sample data: high-net worth, women, and older individuals are more likely to take whole-life annuity option than period-certain option. Finally, we can not find an apparent correlation between stock market performance and immediate annuity purchase.

KEYWORDS

immediate annuities, choice of annuity options, policyholder behavior

Citation status

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