As a consequence of increasing life expectancies, high costs for nursing home and home health care, declining levels of informal family care, and governmental policies encouraging self-reliance, individuals are increasingly exposed to the risk of financial ruin from long-term care expenses. In this project the researchers analyze two separate financial instruments – the life annuity and long-term care insurance – that could address the need for income security and the potential need for age and disability related long-term care. The researchers discuss the reasons why these financial instruments are not widely used, and analyze the market limitations for both products. The researchers then demonstrate that combining the two products has the potential to make them available to a larger market, with minimal underwriting, and at lower cost. Furthermore, they analyze tax and design issues that impact the ability to introduce this combined product and other innovative financial instruments.
The first phase of this project used data from the 1986 National Mortality Followback Survey (NMFS). This phase has been completed. The researchers have submitted a paper, "In Sickness and In Health: An Investigation into the Advantages of Incorporating Long-term Care Benefits into a Life Annuity Payout Stream," to the Journal of Risk and Insurance. The researchers are currently updating their analysis with data from the 1993 NMFS.
