Guillermo Martínez; Juan Pablo Contreras
Abstract: This paper examines the costs of two possible reforms to the Disability and Survivors Insurance in Chile. The first is to separate insurance rates not only by sex but also by age segment. Within this proposal, we determine the most appropriate age groups for differentiating insurance premiums based on this variable, and assess the advantages and disadvantages of charging the maximum rate to all contributors, capitalizing the difference between that rate and the age-differentiated premiums in the individual retirement account. The second proposal to be evaluated is to let the system cover only the economic risk of the inability to work from the date of a claim until normal retirement age (disability claim) or the inability to contribute to household income in the event of death. The analysis is based on data provided by the Chilean Office of the Undersecretary for Social Welfare. These data are the same as those used by the association of Chilean pension fund managers (AFPs) in the public bidding process for disability and survivors insurance of 2012.