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Flexible and affordable methods of paying for long-term care insurance

Rickayzen, B. D., Mayhew, L. & Smith, D. (2019). Flexible and affordable methods of paying for long-term care insurance. North American Actuarial Journal, 25(sup1), S196-S214. doi: 10.1080/10920277.2019.1651657


With the expected dramatic increase in the number of older people requiring care, and the tightening of public funding, individuals will be increasingly expected to contribute to, and plan for, their own care in later life. However, history shows us that people are very reluctant to save for their care to the extent that there are no longer any providers of traditional pre-funded long-term care insurance products in the UK to help address this problem. In this paper, we consider a product which is a disability-linked annuity that provides benefit payments towards the cost of both domiciliary and residential nursing care. We investigate different ways in which individuals can purchase this product with the goal of minimising the impact on their living standards, hence making the purchase of the product more palatable. As well as the traditional methods of purchasing insurance out of income and savings, we show that this product can also be purchased by making use of assets such as residential property. This flexibility would allow individuals to have control over the timing of their payments to fit around their lifestyle, particularly those with low retirement incomes. It follows that some people will be more attracted to particular payment methods than others and a framework is presented which segments people according to individual circumstances. A model is developed showing how the annuity works and how premiums are calculated.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in North American Actuarial Journal on 18 November 2019, to be available online:
Publisher Keywords: Population ageing, long-term care, disability linked annuities, payment methodsmarket, segmentation
Departments: Bayes Business School > Actuarial Science & Insurance
SWORD Depositor:
[thumbnail of NAAJ FINAL 251017.pdf]
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