Long-term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection

We conduct a survey where we ask respondents to rate various insurance products aimed at protecting against long-term care financial risks. We use price variation built into the survey, as well as objective care and death risks for Canada and respondents’ purchasing probabilities, to predict market equilibrium for long-term care insurance. We then investigate the low take-up of long-term care insurance and find that 44% of respondents without insurance were never offered any, and 31% of the overall sample had no knowledge of the product. Our results suggest self-selection of high-risk individuals plays a minimal role in limiting take-up. Once respondents are made aware of the risks, we find that demand remains low because of risk misperceptions, lack of bequest motive, and home ownership.