The Declining Effect of Insurance on Life Expectancy

Abstract

This paper used Reiterative Truncated Projected Least Squares (RTPLS) to estimate the effects on life expectancy of an additional dollar of insurance premiums for 43 countries. The data shows a clear positive relationship between insurance and life expectancy with insurance premiums increasing much faster than the inflation rate. The relationship d(life expectancy)/d(insurance) fell by a statistically significant amount (at a 95 percent confidence level) for 35 of the countries (and the eight exceptions to this pattern had relatively short data series). By 2020, the last dollar of per capita insurance increased a US citizen’s life expectancy at birth by only 6 days, a citizen in the United Kingdom by only 9 days, a citizen in Switzerland by only 7 days, and a citizen in Luxembourg by only 1 day. With such small returns to insurance, an important question is, “Could a society gain more life expectancy by shifting money from insurance into alternative uses”?