Intuitively, I cannot seem to easily explain this relationship: Life Insurance Demanded goes up with increased risk aversion.
An intuitive explanation to this would be much appreciated - thanks in advance.
life insurance is used to provide protection in the event of something going wrong with the primary protected’s life.
More risk aversion - you want to ensure nothing bad happens - so higher risk aversion - you would be willing to pay more for protection
Some notes to be aware of
- Financial wealth - Higher the level of wealth lesser the demand for life insurance
- Human capital volatility - Bond like job increases while equity like job decreases demand of life insurance as it is considered as replacement of human capital
- Risk aversion - more risk averse higher demand for life insurance
- Probability of death - As it increases, individual turns to life insurance
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