Private Long-Term Care Insurance Ownership in a Simple Choice Environment: Does Financial Literacy Matter?

ABSTRACT

We present new evidence on financial literacy and private long-term care insurance (LTCI) ownership in Singapore, where policy intervention has resulted in a highly standardized marketplace with fixed benefit terms and premiums schedules. Using data from the 2018 Singapore Life Panel (N = 6,151), we document that almost half of the adults aged 50 and above in our large community-based sample have private LTCI coverage. We find that that financial literacy significantly increases LTCI demand, notwithstanding a simple choice environment where consumers cannot customize their policies. Furthermore, the importance of financial literacy was borne out through the knowledge aspect rather than financial skills/experience aspects; specifically, each financial knowledge question answered correctly increased the probability of LTCI ownership by 4.4% points on average. Tests for endogeneity between literacy and LTCI ownership reveal no endogeneity bias in the non-instrumented estimates. Overall, these findings underscore these importance of promoting financial education and literacy among consumers in LTCI markets, especially since financial knowledge is expected to play an even more salient role in markets with little or no product standardization.

KEYWORDS:

• Aging
• financial knowledge
• insurance
• long-term care financing
• severe disability

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/08959420.2023.2203601

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This work was supported by the Singapore Ministry of Education (MOE) Tier 1 Grant at LKY School of Public Policy at the National University of Singapore (grant number R-603-000-296-115), as well as The Ngee Ann Kongsi and the MOE Academic Research Fund Tier 3 programme (grant number MOE2019-T3-1-006) at the Singapore Management University.