Understanding the Shift in Demand for Cash Value Life Insurance

Ownership of cash value life insurance in the United States has fallen in recent decades. Changes in age cohorts, family composition, and tax laws may have contributed to this decline. We identify factors that influence the demand for cash value life insurance and test whether they alone can explain the sharp decline in ownership. Demographic and tax code changes do not explain the decrease in permanent insurance. There is a consistent downward trend in demand from 1992 to 2010-particularly among middle-age and younger households. The fewer households who own cash value policies are on average wealthier and more financially sophisticated, suggesting that permanent life insurance is increasingly being used as a tax shield rather than as a hedge against a loss in human capital.