Families can self-insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers. Interfamily transfers need have nothing to do with altruistic feelings; they may simply reflect risk-sharing behavior of completely selfish family members. Although family annuity markets are incomplete, even small families can substitute by more than 70 percent for perfect market annuities. Given adverse selection and transaction costs, family risk pooling may be preferred to public market annuities. In the absence of public annuities, these risk-sharing arrangements provide powerful incentives for marriage and family formation.

Families can self-insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers. Interfamily transfers need have nothing to do with altruistic feelings; they may simply reflect risk-sharing behavior of completely selfish family members. Although family annuity markets are incomplete, even small families can substitute by more than 70 percent for perfect market annuities. Given adverse selection and transaction costs, family risk pooling may be preferred to public market annuities. In the absence of public annuities, these risk-sharing arrangements provide powerful incentives for marriage and family formation.

This paper examines the amount of precautionary savings and wealth inequality arising from life-span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements, namely, when longevity risk can be pooled only with members of one's own family. The central findings of the paper are that (1) perfecting insurance arrangements can sharply lower savings in both intergenerationally altruistic and life-cycle economies and that (2) in altruistic economies perfecting annuity insurance can greatly influence inequality; indeed, in the long run in our model, switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality.

This paper examines the amount of precautionary savings and wealth inequality arising from life-span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements, namely, when longevity risk can be pooled only with members of one's own family. The central findings of the paper are: (1) perfecting insurance arrangements can lower savings in intergenerationally altruistic and life-cycle economies and (2) in altruistic economies perfecting annuity insurance can influence in-equality; indeed, in the long run in the model, switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality.