Why Do People Lapse Their Long-Term Care Insurance?

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The brief’s key findings are:

  • More than one quarter of those who buy long-term care insurance at age 65 will let their policies lapse at some point, forfeiting all benefits.
  • Lapses could be due to the burden of insurance premiums, a strategic calculation that care use is less likely, or poor decisions due to declining cognitive ability.
  • The analysis finds support for both the “financial burden” and “cognitive decline” explanations.
  • The consequences of lapsing are significant, as lapsers are actually more likely than non-lapsers to use care in the future, partly due to cognitive decline.
  • Thus, for some lapsers, having insurance could be counterproductive as they buy it to protect against risk but drop it just when the risk becomes more likely.