The role of life experience in long-term care insurance decisions

This study uses data from a unique survey of the retirement planning behaviors of late middle-aged individuals living in New York State, to test hypotheses regarding the role of earlier life experiences on the demand for long-term care insurance. Our primary focus is on previous provision of informal long-term care, which some studies have found to be correlated with demand for long-term care insurance. We add to the literature by providing a test for causal relationships between previous care-giving and insurance demand, and by exploring the more generally the mechanisms through which previous life experiences are linked to insurance demand. Results are robust to a variety of empirical specifications and estimation methods, including consideration of current care-giving roles and endogenous selection into previous care-giving, and strongly support a causal relationship between previous long-term care-giving and demand for insurance. Our estimates also provide evidence that lifetime health trajectories and family relationships are associated with long-term care insurance demand, and suggest that both emotional and informational forces influence demand.