ARC Centre of Excellence in Population Ageing

For those with a low public pension, annuities are the most important insurance product, while for retirees with an average public pension, critical illness insurance is the most important.3 The demand for LTC insurance is relatively low but positive for all levels of wealth and pensions considered here and is higher for women. [...] We find that a higher marginal utility of consumption in the critically ill and LTC states increases the demand for critical illness and LTC insurance but decreases the demand for annuities. [...] Based on Zhu and Walker (2018) and the data on average provincial-level monthly pensions in 2020,4 we set the low and the average pension incomes to 1,000 CNY and 3,000 CNY, respectively.5 The wealth values are calibrated around the 30th and 80th percentile of the wealth distribution based on data from the 2018 wave of the nationally representative China Health and Retirement Longitudinal Survey 4. [...] For women with an average pension and high wealth, the demand for critical illness insurance increases slightly from 25% to 30%, while the demand for the other two forms of insurance remains the same. [...] Third, we show that a higher marginal utility of consumption in the critical illness and LTC states, increases the demand for the relevant insurance but decreases the demand for annuities.