Valuation of long-term care options embedded in life annuities

Details

Serval ID
serval:BIB_F82CAD73CAD8
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Valuation of long-term care options embedded in life annuities
Journal
Annals of Actuarial Science
Author(s)
Chen A., Fuino M., Sehner T., Wagner J.
ISSN
1748-4995 (print)
1748-5002 (electronic)
Publication state
In Press
Peer-reviewed
Oui
Language
english
Abstract
In most industrialized countries, one of the major societal challenges is the demographic change coming along with the ageing of the population. The increasing life expectancy observed over the last decades underlines the importance to 􏰁nd ways to appropriately cover the 􏰁nancial needs of the elderly. A particular issue arises in the area of health, where su􏰂cient care must be provided to a growing number of dependent elderly in need of long-term care (LTC) services. In many markets, the o􏰀ering of life insurance products incorporating care options and LTC insurance products is generally scarce. In our research, we therefore examine a life annuity product with an embedded care option potentially providing additional 􏰁nancial support to dependent persons. To evaluate the care option, we determine the minimum price that the annuity provider requires and the policyholder's willingness to pay for the care option. For the latter, we employ individual utility functions taking account of the policyholder's condition. We base our numerical study on recently developed transition probability data from Switzerland. Our 􏰁ndings give new and realistic insights into the nature and the utility of life annuity products proposing an embedded care option for tackling the 􏰁nancing of LTC needs.
Keywords
Annuity, Life insurance, Long-term care, Pricing, Utility
Open Access
Yes
Funding(s)
Swiss National Science Foundation / Projects / 100018_169662
Create date
03/02/2021 13:24
Last modification date
18/03/2021 7:26
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