Pricing life annuities for impaired lives: the case of Portugal

Onofre Simões; Cláudia Barradas

doi:10.26360/2022_1

Authors

Onofre Simões Universidade de Lisboa (Portugal) https://orcid.org/0000-0002-9129-3499
Cláudia Barradas Universidade de Lisboa (Portugal) https://orcid.org/0009-0002-9052-3261

DOI:

https://doi.org/10.26360/2022_1

Keywords:

annuities, impaired life, net survival, crude survival, SHARE

Abstract

Life annuities markets are underdeveloped in Portugal and other countries. This annuitization puzzle is explained by improvements in mortality at old ages and passive adverse selection, reasons that put lives with diminished life expectancies at an unfair disadvantage. Using data from the SHARE (Survey of Health, Ageing and Retirement in Europe) project, we assess the impact of some of the most serious and common diseases over a reference survival curve. Then we calculate the price of annuities for impaired lives, using adjusted survival, and compare them with those for the reference population. We show that applying the reference mortality to impaired lives is very unfair and that pricing annuities for lives weakened by disease in an accurate way is possible.

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