Abstract
Long-term care insurance (LTCI) is an important institutional arrangement for addressing disability-related expenditure risk in aging societies. This theoretical study examines how LTCI may influence household risky financial asset allocation by linking social insurance to household-finance mechanisms. Drawing on precautionary saving theory, background risk theory, and the literature on limited financial-market participation, the paper develops an integrated framework in which LTCI can reduce expected long-term-care expenditure uncertainty, substitute for part of household self-insurance, lower background risk, and stabilize long-term expectations. These channels are expected to weaken precautionary liquidity demand and increase households' capacity to bear financial-market risk, thereby creating conditions for greater participation in and allocation to risky financial assets. The strength of these effects is expected to vary with benefit generosity, institutional credibility, household financial literacy, alternative protection arrangements, and the financial-market environment. Because the paper does not employ econometric models or microdata, its claims should be interpreted as theoretical propositions rather than established causal effects. The framework provides testable implications for future empirical research and policy analysis of LTCI and household portfolio choice.