This paper examines the impact of habit formation on the demand for life-contingent contracts in a life-cycle model. We derive an analytical solution for the optimal consumption, portfolio choice, and life insurance/annuity purchases. We illustrate the mechanism by which the consumption habit...

This paper studies the design of an optimal insurance contract with background risk from the perspective of an insured with a general mean-variance preference, where admissible insurance policies satisfy an incentive compatible constraint. This constraint ensures that both parties in an...