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In the United States and other nations, long-term care insurance indemnifies the insured for expenses incurred or provides a daily benefit while the insured cannot perform basic activities of daily living, such as dressing, bathing, eating, toileting, or has a severe cognitive impairment, such as Alzheimer's disease. This Demonstration develops a simplified model of long-term care insurance that uses "health stories". A "health story" is simply a description of the health of a person—"healthy," "LTC", or "dead"—measured at discrete time intervals. The LTC-state means that a person is potentially eligible for long-term care insurance payments based on an inability to perform basic activities of daily living or has a severe cognitive impairment. This Demonstration creates a parameterized model of long-term care insurance that calculates, among other values, the size of the break-even actuarial premium for a group of sample insureds given a user-specified contract and other factors such as expected interest rates and insurer expense loads. It also calculates reserves on long term care policies as they age. You choose from seven groups of parameters: (1) model size, (2) insured age, (3) health-LTC-death transition parameters, (4) insurance contract parameters, (5) miscellaneous parameters, (6) a view parameter to determine the form of the output, and (7) view-specific controls that may have relevance only when a particular view is chosen. Each parameter contains a tooltip that helps explain its function. More information regarding the controls is contained in the Details section of this Demonstration. Depending on your selection for the view parameter, the Demonstration outputs one of three presentations. Summary view shows the distribution among the insureds of life span and LTC-years. It also shows the break-even LTC insurance premium as a fraction of annual indemnity. Story view shows a summary of key contract features and a plot showing, either for each insured or for selected insureds, the cumulative years of being in the LTC state for each year of their life. Blue points along these story lines means the insured is healthy; larger green points mean the insured is in an LTC state and receiving an indemnity; red points mean the insured is not receiving an indemnity. Reserve view shows up to three loci for each year the policy is in effect: (1) [blue] the prospective reserve—the difference between the present expected value (a) of premiums to be received by the insurer and (b) expenses (loads and indemnities) to be paid by the insurer; (2) [magenta] the expected accumulated premiums—the amount the insurer expects to have collected, a figure that is sometimes used as the basis for computing a reduced indemnity amount in the event the insured lets the policy lapse in midstream; and (3) [dotted gold] the maximum amount the insurer could pay under the policy.
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