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We investigate insurance purchases when bequest motives are age-varying andlife insurance and life annuities both carry loads. The existing life cycleliterature assumes bequests are normal goods without being either necessitiesor luxuries. Much of the literature also assumes implicitly that life annuityloads are negative. A key finding of the literature is that the demand for lifeinsurance and the demand for life annuities are symmetrical. It is optimal tobuy life-contingent insurance throughout life, even under loads. A life annuityphase backs directly onto a life insurance phase. We find that realisticexamples with positive loads on both products reveal up to two distinct periodsof non-participation, one in midlife and the other adjoining the maximum age.We highlight examples with necessity bequests during child-rearing years andluxury bequests thereafter. This set of assumptions explains why a substantialdemand for life insurance during child-rearing years can co-exist withnegligible demand for life annuities later on. A realistic 18% load on bothproducts generates this outcome.

Life cycle insurance, bequest motives and annuity loads