Shang Wu, Hazel Bateman, Ralph Stevens and Susan Thorp
Abstract: We study stated preferences for long-term care insurance that pays income instead of reimbursing formal care costs. Our results show that long-term care income insurance is likely to provide two important benefits to aging societies. First, it can facilitate flexible, informal, long-term care - seniors who plan to rely on family members for extensive care find income insurance particularly attractive. Second, it can enhance risk-pooling - if long-term care income insurance were available, many seniors would release funds set aside to self-insure long-term care risk and purchase additional longevity insurance. Our results rule out adverse selection into the long-term care income insurance product on objective risk factors but show both adverse and advantageous selection effects on private information. We conclude that a flexible insurance product that supports informal care has both demand- and supply-side advantages over typical expense-reimbursement cover.
Keywords: Long-term care insurance; aged care; informal care; retirement incomes; annuity demand, online experiment.