Role of Private Long-Term Care Insurance in Financial Sustainability for an Aging Society

Eva Boj del Val, M. Mercè Claramunt Bielsa and Xavier Varea Soler
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Eva Boj del Val: Department of Economic, Financial and Actuarial Mathematics, University of Barcelona, Diagonal, 690, 08034 Barcelona, Spain
M. Mercè Claramunt Bielsa: Department of Economic, Financial and Actuarial Mathematics, University of Barcelona, Diagonal, 690, 08034 Barcelona, Spain
Xavier Varea Soler: Department of Economic, Financial and Actuarial Mathematics, University of Barcelona, Diagonal, 690, 08034 Barcelona, Spain

Sustainability, 2020, vol. 12, issue 21, 1-21

Abstract: This work analyzes and quantifies the significance of private long-term care insurance for the elderly in protecting families from the increased expenses derived from dependency. We propose an economic and financial model for consumption and income deficit evolution. Survival/dependency are modeled by a Markov process with stochastic simulation techniques to obtain random variable distributions. Based on the Spanish survey of household finances data, Spanish families are classified using a cluster analysis for the wealth decumulation period. The conclusion is that, for a generic family, hiring long-term care insurance causes a significant reduction in the probability of lack of liquidity, the mean first time of lack of liquidity (if it occurs), and the mean present value of overall liquidity needs. It is also observed that there are important differences between these impacts on different groups of families. These results show that hiring long-term care insurance would considerably lower financial problems in the decumulation period.

Keywords: life cycle; cluster analysis; Markov process; survey of household finances; simulation; Spain (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:21:p:8894-:d:435213

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