One-sided commitment in life insurance contracts: Evidence from Health and Retirement Study

Abstract

We study the properties of long-term insurance contracts using an individual-level survey data. Results indicate longer-term contracts are involved with lower lapse rates and healthier pool. These are consistent with the implications of Hendel and Lizzeri model with one-sided commitment. • Use an individual-level survey data to examine the properties of long-term contracts. • Under one-sided commitment, the longer-term life contracts are associated with lower lapse rates. • Longer-term life contracts also retain better risk pools.