A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle

Using the results from a survey of 2,000 Canadians, we examine the different hypotheses put forward to explain the low demand for long-term care (LTC) insurance. Defining the natural market of LTC insurance as the one catering to individuals aged between 50 and 70, we find that a remarkable share has never been approached to purchase such protection. We estimate that approximately 60% of this natural market is currently under-served. After eliminating risk perception and demand-side explanations, we conclude that supply-side factors and crowding-out by government programs are the most likely culprits in explaining the low proportion of Canadians who purchase LTC insurance from private providers.