Simulation Modeling on a Life Care Annuity

Research Report

Simulation Modeling on a Life Care Annuity

January 1, 2007

Abstract

State and federal interest in increasing private pre-funding of long-term care expenses continues to grow because of longevity gains and looming increases in the number of older Americans as Baby Boomers enter retirement. This study examines the potential for asset-based pre-funding of retirement income and disability insurance through an annuity combining income and long-term care protection. We compare the assets of older Americans with the price of a combined annuity and their income and assets with published guidelines for "affordability" of LTCI, with a focus on the potential role of housing equity. Finally, we consider impacts on access of the relaxed medical underwriting for LTCI theoretically possible in a combined annuity and alternate annuity designs that would reduce the annuity cost without reducing long-term care benefits.

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