2013 Conference

Financial Services

Financial Services

With increasing life expectancies, older adults are being called upon to make complicated financial decisions over a longer time horizon than ever before. One of the most complicated of these decisions is whether or not to purchase long-term care insurance. The uncertain and costly nature of long-term care makes it a candidate for insurance coverage because of potentially catastrophic financial outcomes. This paper examines the role that consumer numeracy skills could play in the demand for long-term care insurance. Combining the complexity of the product with the general tendency for older adults to be more negatively affected by task complexity than younger adults suggests the possibility that cognitive complexity could become a barrier to purchase for many older adults. When examining 18,649 respondents from the 2006 HRS, results reveal that respondents with the lowest scores on math-related tests (serial seven subtraction test or numeracy test) are much less likely to purchase long-term care insurance even after controlling for a variety of socio-demographic factors. Financial planners may reduce the cognitive complexity of the decision by presenting fewer options and making a specific recommendation on a policy for clients considering the purchase of long-term care insurance. For clients with math-related challenges, planners may consider completing any simple math problem or presenting more verbal forms of information in order to overcome a potential barrier to decision making and thus allowing the client to better use the information presented.