Life-Care Tontines

Peter Hieber and Nathalie Lucas
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Peter Hieber: Université catholique de Louvain, LIDAM/ISBA, Belgium
Nathalie Lucas: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2020026, LIDAM Discussion Papers ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: This paper builds on the advantage of pooling mortality and morbidity risks, and their inherent natural hedge. We focus on classical mutual risk pooling schemes, i.e. tontines, and introduce a "life-care tontine", which in addition to retirement income targets the needs of long-term care coverage for an ageing population. This scheme reduces adverse selection costs and is actuarially fair at each time. Pooling heterogeneous risks (i.e. different age groups) is shown to reduce overall risk. The life-care tontine is compared to a classical life-care annuity. Technically, we rely on a backward iteration to deduce the smoothed cashows pattern and the separation of cash-ows in a fixed withdrawal and mortality and/or morbidity credits. We apply our model to real life data, illustrating the adequacy of the proposed tontine scheme.

Keywords: mutual insurance; long-term care; morbidity and mortality risk; tontines; pooled annuities; life-care insurance (search for similar items in EconPapers)
Pages: 31
Date: 2020-01-01
New Economics Papers: this item is included in nep-age, nep-ias and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvad:2020026

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