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Living Benefits: Closing The Gap for LTC Financing

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Working Paper Number SEHSD-WP1990-11 or SIPP-WP-125

The continuing failure of public officials and private interest groups to come to a politically acceptable compromise on the benefit structure and the financing mechanism for a public long term care insurance program has encouraged the private market to offer new ways to pay for care. Much has been written on the expansion in the private long-term care insurance market (See Meiners & Trapnell, 1984, or Meiners, 1983, for example) Other research has investigated the liquidation of one of the -most widely held assets, home equity (Jacobs, 1986; Weinrobe, 1988). There has been little information, however, on the latest private market solution to capture attention, what has been called "Living Benefits". These living benefits, technically a payment of a portion of the death benefit from a life insurance contract prior to death, could play a role in closing the gap in financing long-term care. How significantly living benefits affect long term care financing, however, depends on the number of persons who own life insurance and the payments they could expect given the face value of their policy, as well as on a number of institutional factors, such as the treatment of such contracts by federal, state, and local authorities and the willingness of individuals to make use of their death benefits in this fashion.

This paper assesses the possible part that living benefits could play in financing long term care for the current elderly by examining the holdings of life insurance in December 1984 by the elderly population in the United States using the Survey of Income and Program Participation (SIPP) The data from the SIPP are used to estimate the distribution of life insurance face value held by persons 65 and older, as well as the probable payment to these individuals, given the structure of current living benefits contracts. These calculations are made for several subpopulations among the elderly including the old-old (over age 75), those in poor or fair health status, and those with certain health conditions which are often used to trigger living benefits payments. In addition, the life insurance holdings of individuals are examined by economic variables such as income and wealth to assess whether living benefits provides help to those currently without sufficient economic resources to pay for care.

Page Last Revised - October 8, 2021
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