Financing the Loss of Autonomy: the Possibility of Reverse Mortgages and Compulsory Insurance

Carole BONNET * Directrice de recherche, Institut national d'études démographiques (INED).

Sandrine JUIN ** Maître de conférences, ERUDITE, Université Paris-Est Créteil ; chercheure associée, INED.

Anne LAFERRÈRE *** Chercheure associée, Université Paris-Dauphine PSL, LEDa LEGOS. Contact : anne.laferrere@dauphine.fr.

Within the context of an ageing population, funding long-term care (LTC) remains a challenge. This article explores two possible funding options: individual savings – especially the use of property assets, which constitute the major part of Europeans' savings – and the pooling of risks through compulsory LTC insurance. Using SHARE (Survey of Health, Ageing and Retirement in Europe) data and thanks to a microsimulation model, we estimate the disability trajectories of people over 65 in nine European countries and their ability to finance the associated LTC expenditures. While in France only 5% of dependent individuals could pay for their loss of autonomy with just their income, 74% could pay for one year of LTC and 69% for two years with their savings and a reverse mortgage (RM) taken out at the onset of dependency. Using a RM could be done within the context of a compulsory LTC insurance policy that would cover 100% of costs after a deductible (Arrow, 1963), based on the number of years of disability. A RM on part of the value of the home could help to pay the deductible, as well as the insurance premiums.