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- Title
Lapses in long‐term care insurance.
- Authors
Friedberg, Leora; Hou, Wenliang; Sun, Wei; Webb, Anthony
- Abstract
About a quarter of long‐term care insurance (LTCI) policy holders aged 65 let their policies lapse before death, forfeiting all benefits. We find that lapse rates are substantially higher among the cognitively impaired in the Health and Retirement Study. This generates a pernicious form of dynamic advantageous selection, as the cognitively impaired are more likely to use care. Simulations show that an inappropriately optimistic asset drawdown path further increases the individual welfare cost of unanticipated lapses. Meanwhile, we find evidence of a significant but very small role for either strategic or financial motives for lapsing.
- Subjects
LONG-term care insurance; COGNITION disorders; LONG-term health care
- Publication
Journal of Risk & Insurance, 2023, Vol 90, Issue 3, p569
- ISSN
0022-4367
- Publication type
Article
- DOI
10.1111/jori.12425