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Insuring against the costs of long-term care: the role of INAs

2012 Conference Presentation

Economics EnglandUnited Kingdom

7 September 2012

Insuring against the costs of long-term care: the role of INAs

Julien Forder, PSSRU, University of Kent, United Kingdom
Jose-Luis Fernandez, London School of Economics, United Kingdom


A central element of recent proposals to reform the funding of long-term care in England – the Dilnot Commission – was a measure to limit the exposure of service users to longevity cost risk. Recognising that there is a long tail to the distribution of lifetime costs of care, the Commission called for a cap on the total cost any person could incur before the state stepped in to meet further costs.

At present the only private long-term care insurance solution available in England is the immediate need annuity (INA) which covers people against this tail-end cost risk. In exchange for a lump-sum payable at the onset of a long-term care need, the policy pays out on a regular basis for as long as care is required (usually until death). This paper presents an analysis of INAs, assessing the potential for people to both benefit and afford INAs in principle. It also considers how the public means-tested funding rules could be modified to reduce crowding-out of private insurance.

The analysis draws on administrative and survey data to estimate the shape of the lifetime cost distribution. A conceptual model is used to consider the potential problems of crowding-out. Micro-simulation modelling is then used to assess who would benefit from an INA given the current means-tested public funding system.