Long-term care insurance
Insurance paying an annuity or lump sum when the insured can no longer perform the essential activities of daily living alone, a long, poorly known and hard-to-price risk.
Long-term care insurance covers loss of autonomy, mostly linked to old age: the insured can no longer wash, dress, eat, move around or use the toilet without help. It usually pays a monthly annuity, sometimes with a lump sum to adapt the home, from the moment dependency is recognized under the policy definition. That definition is the heart of the product. It relies either on a public grid, the French AGGIR grid, or on a count of the activities of daily living the insured can no longer perform, and often distinguishes partial and total dependency. The policy sets a waiting period, often one year for illness and longer for neurodegenerative diseases, and an elimination period before the first payment. The risk is formidable to price: it materializes decades after underwriting, data on duration of dependency are scarce, and the longevity trend keeps shifting it. US long-term care insurers learned this expensively, after underestimating claim durations and overestimating lapses. In France, the market remains narrow; the creation in 2020 of a fifth branch of social security dedicated to autonomy revived the debate on how public cover and private insurance should fit together.
Hypothetical case: an insured takes out cover of 1,200 euros a month for total dependency at age 55. At 84, classified GIR 2, she moves into a care home: after the 90-day elimination period, the insurer pays the annuity until her death six years later, nearly 85,000 euros in total.
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