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The market for long-term care (LTC) insurance is much smaller than economic theory predicts. One reason is that premium markups are prohibitively high. We aim at quantifying markups for LTC insurance due to mortality and morbidity risk. To this end, we model a shareholder value maximising insurance company that is subject to solvency regulation. Because liabilities from LTC insurance (which depend on future morbidity and mortality) are more volatile than liabilities from annuities (which only depend on future mortality), capital provisions to ensure compliance with regulatory solvency requirements are higher if an insurance company offers LTC insurance instead of annuities. At the same time, a higher volatility in the LTC insurance segment also implies a higher expected payoff to the insurance company’s shareholders. To quantify which effect prevails and which product policy is optimal, we conduct an empirically calibrated simulation study with stochastic mortality and LTC needs. Our results show that offering LTC insurance increases the upside potential to shareholders, but that effect is more than offset by a higher need for external capital. Consequently, if shareholders are to accept an LTC insurance segment, holders of an LTC insurance policy need to pay considerable markups. The more LTC insurance contracts the insurer has sold, the higher the markups.

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.

COVID-19 outbreaks at nursing homes during the recent pandemic, which received ample media coverage, may have lasting negative impacts on individuals’ perceptions regarding ursing homes. We argue that this could have sizable and persistent implications for savings and long-term care policies. We first develop a theoretical model predicting that higher nurs- ing home aversion should induce higher savings and stronger support for policies subsidizing home care. We further document, based on a survey on Canadians in their 50s and 60s, that higher nursing home aversion is widespread: 72% of respondents are less inclined to enter a nursing home because of the pandemic. Consistent with our model, we find that the latter are much more likely to have higher intended savings for older age because of the pandemic. We also find that they are more likely to strongly support home care subsidies.