Long Term Care Risk Misperceptions

Based on a survey we conducted in Canada, we contrast subjective probabilities with actual probabilities for three different risks: needing help for at least one activity of daily life, needing access to a nursing home, and living to be 85 years old. The paper describes how objective and subjective probabilities differ and correlate; studies cross-correlations between different types of risks; and then study how risk misperceptions correlate with individual characteristics, and how misperceptions affect purchase intentions and actual holdings of long-term care insurance (LTCI). We find that most subjects are not well informed about their individual long-term care risks, making it difficult for them to take the correct LTCI decisions. Second, and even though misperceptions explain an individual’s LTCI holding or purchase intentions, misperceptions are unlikely to explain the low LTCI take-up rate in our sample.