Aug 9, 2018
Annuities, long-term care insurance (LTCI), and reverse mortgages appear to oﬀer important consumption smoothing beneﬁts to the elderly, yet private markets for these products are small. A prominent idea is to combine LTCI and annuities to alleviate both supply (selection) and demand (liquidity) problems in these markets. This paper shows that if consumers typically liquidate home equity only in the event of illness, then LTCI and annuities become substitutes and less attractive. Simulations conﬁrm that without home equity loans, both LTCI and constant real annuities may be welfare destructive, particularly in combination.