The interplay between longevity and morbidity on optimal choice of long-term care insurance
Type
presentation
Date Issued
2022-08-03
Author(s)
Abstract (De)
I investigate the interplay between health state transitions and longevity risk on retirees’ optimal decision to purchase long-term care (LTC) insurance. By incorporating a life-cycle model framework, I examine how increased longevity in alternative morbidity scenarios (i.e., morbidity compression/expansion and dynamic equilibrium) influences retirees’ optimal choice of LTC insurance in a setup with consumption floors supported by government subsidies and bequest motives. I use health state transition matrices estimated from the U.S. Health and Retirement Survey dataset and adjust mortality improvements using the Human Mortality Database. The results show a lower optimal purchase of LTC insurance in the morbidity expansion scenario due to an increase in actuarially fair premium compared to other scenarios. When survival ambiguities are considered, both morbidity compression and expansion reduce the demand for LTC insurance. In the dynamic equilibrium scenario, the optimal LTC insurance purchase rate remains almost the same. Such findings emphasize the importance of considering the dynamics and ambiguities of longevity and morbidity rates on the demand for LTC insurance.
Language
English
Event Title
American Risk and Insurance Association (ARIA) Annual Meeting 2022
Event Location
Long Beach, CA (USA)
Event Date
03 August 2022
Subject(s)
Division(s)
Contact Email Address
omid.ghavibazoo@unisg.ch
Eprints ID
267519