WHY DO PEOPLE DEMAND LIFE INSURANCE SAVINGS?

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  • Why Do People Demand Life Insurance Sav

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Abstract

If policyholders surrender their level-premium permanent life insurance contracts in favor of a “buy term and invest the cash value by themselves” proposal, would they be better off? In response to such a standing question in life insurance literature, so-called “separatists” recommend that saving and protection elements of life contracts should be separated. Their argument is based on the observation that: (a) level-premium life insurance overcharges the policyholders and (b) an individual can invest his life insurance savings more wisely than can the life insurance company. Against such a recommendation, however, most of life insurance specialists stoutly maintain the view: People can effectively preserve their life protection only when the saving feature is combined with the protection feature. The purpose of this paper is to offer a through economic analysis on these conflicting doctrines.

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