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Lapses in Long-Term Care Insurance

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Abstract

About a quarter of people with long-term care insurance let their policies lapse before they die. This study shows that policyholders who enter nursing homes are more likely to let their insurance lapse due to cognitive impairment. For these individuals, long-term care insurance is worse than useless. They not only lose their premiums, but also spend down their wealth too rapidly, erroneously believing that their insurance policy will cover long-term care costs at older ages.

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  • Leora Friedberg & Wenliang Hou & Wei Sun & Anthony Webb, 2017. "Lapses in Long-Term Care Insurance," SCEPA working paper series. 2017-08, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2017-13
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    References listed on IDEAS

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    1. Wenliang Hou & Wei Sun & Anthony Webb, 2015. "Why Do People Lapse Their Long-Term Care Insurance?," Issues in Brief ib2015-17, Center for Retirement Research.
    2. Amy Finkelstein & Kathleen McGarry & Amir Sufi, 2005. "Dynamic Inefficiencies in Insurance Markets: Evidence from Long-Term Care Insurance," American Economic Review, American Economic Association, vol. 95(2), pages 224-228, May.
    3. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June.
    4. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    5. Leora Friedberg & Wenliang Hao & Wei Sun & Anthony Webb & Zhenyu Li, 2014. "New Evidence on the Risk of Requiring Long-Term Care," Working Papers, Center for Retirement Research at Boston College wp2014-12, Center for Retirement Research.
    6. Yong Li & Gail A. Jensen, 2012. "Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(2), pages 220-237.
    7. Office of Health Economics, 2007. "The Economics of Health Care," For School 001490, Office of Health Economics.
    8. Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1967-1991, November.
    9. Yong Li & Gail A. Jensen, 2012. "Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(2), pages 220-237.
    10. Paul E. McNamara & Nayoung Lee, 2004. "Long-term Care Insurance Policy Dropping in the U.S. from 1996 to 2000: Evidence and Implications for Long-term Care Financing," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 29(4), pages 640-651, October.
    11. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
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    Cited by:

    1. Daniel Gottlieb & Kent Smetters, 2021. "Lapse-Based Insurance," American Economic Review, American Economic Association, vol. 111(8), pages 2377-2416, August.
    2. Lambregts, Timo R. & Schut, Frederik T., 2020. "Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    3. Martin Eling & Omid Ghavibazoo, 2019. "Research on long-term care insurance: status quo and directions for future research," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(2), pages 303-356, April.

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    More about this item

    Keywords

    long-term care insurance; insurance lapsing; insurance companies;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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