In Sickness and in Health: An Annuity Approach to Financing Long-Term Care and Retirement Income
In Sickness and in Health: An Annuity Approach to Financing Long-Term Care and Retirement Income
This chapter presents the hypothesis that bringing together the two opposing risks—long life versus short life with disability—in theory, has the potential to reduce both adverse selection in income annuity and the need for underwriting in long-term care insurance. If proven to be true in practical terms, such a combined product could be priced more cheaply than separately purchased products, and could be made available to more people. In this chapter, this proposition is empirically investigated via data from the 1986 National Mortality Followback Survey (NMFS) projected to represent hypothetical purchasing pools at ages 65 and 75 in 1995. The number of persons eligible to purchase a combined product with minimal medical underwriting for the disability benefit is simulated, and implied premiums for the combined product relative to those for separate purchase of stand-alone products are approximated.
Keywords: long life, disability, adverse selection, income annuity, underwriting, insurance, NMFS
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