Housing Wealth as Self-insurance for Long-Term Care

Long-term care (LTC) insurance is about providing resources for care and services, should they be needed because of a disability, usually in very old age. A premium is paid, that is, money is put aside from current consumption, to face the risk of the expenses linked to the future need of assistance in activities of daily living. Housing wealth, by comparison, is linked to daily living in a place, consuming housing services, performing daily activities, in a particular surrounding called ‘home’. If the home is owned, housing also is a form of saving. It can be used in case of need, for instance, for LTC. Due to the dual nature of housing, both consumption and investment good, and due to its indivisibility and illiquidity, the issue is how to extract housing equity to finance LTC. Financial devices, such as vente en viager, the sale of a home for a life annuity have existed for centuries; various forms of ‘reverse mortgages’ are more recent. This chapter assesses the role of homeownership in providing self-insurance for LTC. Self-insurance seems a contradiction in terms, as insurance is pooling a risk over a large population, and self-insurance does not seem adapted for a high-cost risk such as LTC. However, a more careful analysis of the risks faced in old age, and of the unique characteristics of housing as consumption good, as a place where care can be provided and as a saving vehicle may justify the oxymoron in the title of this chapter.