Abstract
This paper presents the first calculation of a quarterly time series of the after-tax rate of return to cash-value life insurance. By comparing this series to the series of the after-tax return on an alternative portfolio of similar risk one finds that more than 80 percent of the decline in life insurance savings in the past quarter century can be attributed to a widening after-tax rate of return differential. This result is important for studies of flow of funds and capital accumulation using the United States historical record. The relative place of life insurance in United States household savings has declined since the mid 1 950s and indeed this decline has accelerated in recent years.1 This decline is demonstrated most clearly by the reduction in the savings flow through the life insurance intermediary as a percentage of personal disposable income, as shown in Table 1. Life insurance savings are intimately connected with the provisions of the cash-value life insurance policy. Any explanation of the reasons for the decline in life insurance savings must, therefore, depend on changes in the attractiveness of the cash-value life insurance policy. A cash-value policy is a The work started as a joint enterprise with Martin Feldstein, who assumed chairmanship of the President's Council of Economic Advisers before it was finished. The author's sincere appreciation goes to him, as well as to Benjamin Friedman, Jim Weber of Phoenix Mutual Life, Benjamin Wurzburger of John Hancock Mutual Life, a member of the Editorial Board, two anonymous referees, and to the American Council of Life Insurance for help with data. This paper is a revised version of NBER Working Paper #1040, December 1982. The research reported here was initially supported by the Natonal Bureau of Economic Research program in Taxation and project in Government Budget. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research or the Board of Governors of the
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
