Chapter 17 Life Cycle Financial Risks
In Part III, we concentrated on the risks to properties and liabilities, and we concluded with Chapter 16 "Risks Related to the Job: Workers’ Compensation and Unemployment Compensation" about the risks in employment. We now begin a discussion of the life cycle and the quality of life risks. This chapter is a general overview of the life cycle risks that will be dealt with in greater detail in the following chapters. Dealing with life risks involves enormous sums of money (roughly speaking, about 40 percent of personal income). The handling of these risks is done by large organizations: the government, pension funds, saving plans, financial institutions, and insurance companies. These institutions directly employ a very large number of people, and they are connected to a large number of other employees (agents, adjusters, doctors, lawyers, suppliers). We will show that the handling of these risks is strongly correlated with some of the key macroeconomic parameters such as national savings, interest rates, the growth of the economy, and demographic developments. This will be done largely from a global perspective.
In this chapter, we shall give a general survey of the risks that are associated with our lives. We will characterize them, offer estimates as to their probabilities, and assess their impact. There are three major classes of risks associated with the life cycle: the risks associated with a premature death; the risks associated with long life (old age, longevity); and the risks associated with our well-being (health risks, disabilities, loss of earning capacity, and unemployment). Most of these risks are related to our physical well-being. However, the last one may be related to external economic parameters, like unemployment. Due to increases in life expectancy, old-age risks are becoming the dominant focus. We will discuss the major changes taking place in areas such as employment patterns, financial instruments, saving patterns, life expectancy, demography, societal forms, dependency ratios, family structure, and the like. To complete the picture and to broaden our horizons, we shall conclude the chapter by discussing important demographic trends that follow technological waves and affect the life cycle risks.
This chapter includes the following topics:
- Risks related to mortality
- Risks related to longevity
- Risks related to health and disability
- Global trends and their impact on demography and the life cycle risks