Life-cycle consumption and life insurance: Empirical evidence from Italian Survey

The purpose of this paper is to investigate empirically if the purchase of the life insurance improves the life-cycle consumption profile of Italian households. Starting from the Yaari life-cycle model in the presence of voluntary bequest and term life insurance that cannot be resold in the context of life expectancy uncertainty and, using the CRRA (Constant Relative Risk Aversion) utility function, we obtain two testable Euler equations, one in the case of no insurance and the other with insurance. Then, we elaborate a panel using the data collected from the site of the Bank of Italy and refer to “Indagine sui Bilanci delle Famiglie Italiane, 1977–2016” and we test, empirically, if the insurance policy does, indeed, improve the consumption profile. Adopting as estimator the GMM-sys, we obtain that the life insurance purchase generates a positive effect on the Italian household consumption and, in light of this result, we discuss the motivations whereby only 54% of households in the sample decide to take out an insurance policy. •Empirical literature in the contest of life- cycle consumption and the Euler equation.•Calculation of the three testable equations using the CRRA explicit utility function.•Estimation of equations using the GMM-sys method and analysis of results.