Dependence and Franchise

Justina KLIMAVICIUTE * Universités de Liège et de Vilnius. Contact : justina.klimaviciute@evaf.vu.it.

Pierre PESTIEAU * Professeur d'économie, HEC, ULiege et CORE, UCLouvain. Contact : p.pestieau@ulg.ac.be.L'auteur remercie Sergio Perelman et Jérôme Schoenmaeckers pour leurs commentaires, de même que la Chaire « Marché des risques et création de valeur » de la FdR/SCOR pour son soutien financier.

In this article, we present several formulas that insurance companies could adopt to repay the costs of dependency. The two most common formulas are the lump-sum formula of paying a fixed and permanent annuity and the indemnity formula which consists of reimbursing a ceiling for all expenses incurred during a certain period. Neither of these two formulas avoids that in case of long dependence the insured does not spend all his wealth, or even depend on his children. To cover this risk of long-term dependence, we recommend applying the principle of deductible that beyond a certain period of dependence, all costs would be reimbursed by the insurer.