Economic Effects of Life Insurance

Life insurance offers simultaneously protection against biometric risks and against the risk of high investment losses. Specifically it protects the income level of private households against the negative consequences resulting from the uncertainties of life time and individual earning capacity. A comparison of premium revenues for longevity, mortality, survivor, and disability risks reveals that Austrian households have a low propensity to spend on private disability insurance. Claims payments from life insurance make up for 3 to 4 percent of disposable income and they are an important source of substitute income as the payment is either conditional on an adversity or on retirement. At the moment, life insurance faces a challenging environment which disguises the advantages from long contract periods for accumulating pension capital. Moreover, individuals can use life insurance as an instrument to self commit towards long-term saving. Long contract periods alleviate the build-up of pension capital and classical life insurance policies provide comparatively smooth interest earnings, thus they offer individuals with a low loss capacity the opportunity to invest in broadly diversified portfolios.