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

Author

Listed:
  • Matthew Shapiro

    (University of Michigan)

  • Joseph Briggs

    (New York University)

  • Chris Tonetti

    (Stanford GSB)

  • Andrew Caplin

    (NYU)

  • John Ameriks

    (The Vanguard Group, Inc.)

Abstract

Individuals face significant late-in-life risks, including potential long-term care (LTC) needs. Yet they hold little corresponding insurance (LTCI). We investigate the degree to which a fundamental lack of interest, poor product features, and possible behavioral factors determine low LTCI holdings. We estimate a rich set of individual-level preferences and use a life-cycle model to find that ideal insurance would be far more widely held than are products in the market. We find that flaws in existing products provide only a partial explanation for this under-insurance puzzle, with analogous findings for the gap between estimated and actual annuity holdings. Our results derive from ``strategic survey questions'' that identify preferences as well as stated demand questions.

Suggested Citation

  • Matthew Shapiro & Joseph Briggs & Chris Tonetti & Andrew Caplin & John Ameriks, 2016. "Late-in-Life Risks and the Under-Insurance Puzzle," 2016 Meeting Papers 241, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:241
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    References listed on IDEAS

    as
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    Cited by:

    1. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
    2. Joseph Briggs & Christopher Tonetti, 2019. "Risky Insurance: Insurance Portfolio Choice with Incomplete Markets," 2019 Meeting Papers 1388, Society for Economic Dynamics.
    3. Martin Boyer & Philippe De Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2017. "Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection," NBER Working Papers 23918, National Bureau of Economic Research, Inc.
    4. John Laitner & Dan Silverman & Dmitriy Stolyarov, 2018. "The Role of Annuitized Wealth in Post-retirement Behavior," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 71-117, July.
    5. Martin Boyer & Philippe De Donder & Claude-Denys Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2018. "A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle," Cahiers de recherche 1806, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    6. M. Martin Boyer & Philippe De Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2020. "Long-Term Care Insurance: Information Frictions and Selection," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 134-169, August.
    7. John Ameriks & Joseph Briggs & Andrew Caplin & Minjoon Lee & Matthew D. Shapiro & Christopher Tonetti, 2020. "Older Americans Would Work Longer If Jobs Were Flexible," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 174-209, January.
    8. van Ooijen, Raun & de Bresser, Jochem & Knoef, M.G., 2019. "Preferences for Long-Term Care Services: Bequests, Informal Care and Health Expectations," Other publications TiSEM a60a8e39-57eb-48e4-89b4-e, Tilburg University, School of Economics and Management.
    9. Siha Lee & Kegon T. K. Tan, 2019. "Bequest Motives and the Social Security Notch," Working Papers 2019-061, Human Capital and Economic Opportunity Working Group.
    10. Jonathan A. Parker & Nicholas S. Souleles, 2017. "Reported Effects vs. Revealed-Preference Estimates: Evidence from the propensity to spend tax rebates," NBER Working Papers 23920, National Bureau of Economic Research, Inc.
    11. R. Anton Braun & Karen A. Kopecky & Tatyana Koreshkova, 2017. "Old, Frail, and Uninsured: Accounting for Puzzles in the U.S. Long-Term Care Insurance Market," FRB Atlanta Working Paper 2017-3, Federal Reserve Bank of Atlanta.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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