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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.

Citation status

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