Working Paper: NBER ID: w31038
Authors: Pierrecarl Michaud; Pascal St-Amour
Abstract: Annuities, long-term care insurance and reverse mortgages remain unpopular to manage longevity, medical and housing price risks after retirement. We analyze low demand using a life-cycle model structurally estimated with a unique stated-preference survey experiment of Canadian households. Low risk aversion, substitution between housing and consumption and low marginal utility when in poor health explain most of the reduced demand. Bequests motives are found to be a luxury good and play a limited role. The remaining disinterest is explained by information frictions and behavioural status-quo biases. We find evidence of strong spousal co-insurance motives motivating LTCI and of responsiveness to bundling with a near doubling of demand for annuities when reverse mortgages can be used to annuitize, instead of consuming home equity.
Keywords: longevity; health; housing risks; retirement; annuities; long-term care insurance; reverse mortgages
JEL Codes: G51; G53; I13; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low risk aversion (D81) | reduced appetite for insurance products (G52) |
| low risk aversion (D81) | high elasticity of intertemporal substitution (D15) |
| strong health-dependent utility discounts (I18) | decreased demand for annuities (G52) |
| strong health-dependent utility discounts (I18) | decreased demand for long-term care insurance (G52) |
| bequest motives (D64) | diminished attractiveness of bequest insurance (D15) |
| public insurance (I13) | reduced demand for private risk management products (G52) |
| bundling reverse mortgages with annuities (G51) | increased demand for annuities (G52) |