The Market for Life Care Annuities: Using Housing Wealth to manage Longevity and Long-Term Care Risk

Abstract
This paper investigates the market for life care annuities that change the level of benefits of policy holders become frail. In collaboration with an insurance company we designed marketable products that are financed through a combination of monthly premiums and/or a lump sum. Homeowners pay this lump sum as a reverse mortgage due when the house is sold or at the death of the last surviving owner, unlocking housing wealth to manage the risks of old age. Preferences are elicited in a discrete choice (paired conjoint) experiment in the Longitudinal Internet Studies for the Social sciences (LISS) panel, a large representative household panel in the Netherlands. We find that 40% would want to buy care-only annuities which only pay out when frail. Preferences for more expensive products with a non-care component favor the lump sum over premiums by 8 %-points. Budget constraints based on individual income and wealth render reverse mortgages the only viable mode of payment for those expensive products. Constrained demand under lump sums ranges from 30-35% for a care-only annuity to around 20% for a product with a non-care annuity of 500 euro per month. These results can be used for designing supplementary insurance to cover increasing out-of-pocket expenditures for long-term care, especially nursing home care.

Information
This is an in-person seminar, but a Zoom link is available upon request ( healtheconomics@ese.eur.nl).