Housing liquidity and long-term care insurance demand: A quantitative evaluation

TitleHousing liquidity and long-term care insurance demand: A quantitative evaluation
Publication TypeJournal Article
Year of Publication2021
AuthorsAchou, B
JournalJournal of Public Economics
Volume194
Pagination104353
ISBN Number0047-2727
KeywordsHousing, Insurance, Life-cycle, Liquidity, Long-term Care, Retirement
Abstract

In theory, illiquid housing may substitute for long-term care insurance (LTCI) as retirees decumulate housing wealth mainly when moving to long-term care facilities. In this paper, I build and estimate a rich life-cycle model of single retirees in order to evaluate whether the impact of housing liquidity on LTCI demand is large. Overall, I find that the prospects of increasing LTCI demand by making housing more liquid are quite limited, as even large increases in housing liquidity generate modest increases in LTCI demand. I also find a limited impact of housing liquidity on the demand for life annuities. Finally, I show that the types of bequest motives used to rationalize the low take-up of reverse mortgages are generally inconsistent with the low demand for LTCI, suggesting that other factors may play a role in this low take-up of reverse mortgages.

DOI10.1016/j.jpubeco.2020.104353
Citation Key11407