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Late-in-Life Risks and the Under-Insurance Puzzle

Listed author(s):
  • John Ameriks
  • Joseph Briggs
  • Andrew Caplin
  • Matthew D. Shapiro
  • Christopher Tonetti

Individuals face significant late-in-life risks, including needing long-term care (LTC). Yet, they hold little long-term care insurance (LTCI). Using both “strategic survey questions,” which identify preferences, and stated demand questions, this paper investigates the degree to which a fundamental lack of interest and poor product features determine low LTCI holdings. It estimates a rich set of individual-level preferences and uses a life-cycle model to predict insurance demand, finding that better insurance would be far more widely held than are products in the market. Comparing stated and model-predicted demand shows that flaws in existing products provide a significant, but partial, explanation for this under-insurance puzzle.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 22726.

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Date of creation: Oct 2016
Handle: RePEc:nbr:nberwo:22726
Note: AG HE EFG ME PR
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