Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities

With aging populations, the role of private insurance in financing late-in-life risks is likely to grow. Yet, demand
for long-term care insurance (LTCI) and life annuities (hereafter annuities) is very limited and lags behind
economic projections. This systematic literature review surveys the large number of theoretical and empirical
studies analyzing this contradiction. We examine the LTCI and annuity puzzles separately and show which
factors limit demand for insurance against both late-in-life risks. Our systematic search rendered 3,945 unique
hits and findings of 187 studies were integrated in our analyses. Results hereof suggest that holding of both
insurance products is systematically impeded by substitution by social security, adverse selection, nonstandard
preferences and limited rationality due to low financial literacy and risk unawareness. Furthermore, insurance
holding is concentrated among wealthier and subjectively healthier individuals. A comprehensive approach
addressing all four reasons for low uptake may increase insurance holding most effectively and may particularly
empower people with lower socio-economic status to make well-informed decisions.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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