We recently noted the announcement that major insurer, John Hancock, is withdrawing from the traditional long-term care (LTC) insurance marketplace effective this month and is discontinuing new sales of its LTC insurance products. Hancock joins Prudential, MetLife, Unum and a host of smaller companies that have withdrawn from the traditional LTC insurance space.
What does John Hancock’s announcement mean for consumers?
If you own a John Hancock LTC insurance policy, let’s address the first question that’s likely on your mind: will I still have coverage? The answer, thankfully, is yes. The company will continue to service and pay claims on its existing policies, and we generally recommend that you hold existing John Hancock policies if the premium is still manageable.
That’s the good news. The bad news is that because it no longer seeks to be a competitive player in the LTC insurance marketplace, John Hancock may have less incentive to “hold the line” on future price increases for in-force policyholders. We’ll be watching John Hancock’s treatment of existing LTC insurance policyholders very carefully.
Bottom line: the move leaves a very limited set of options for traditional LTC insurance products backed by large, highly rated insurers. A small number of “captive” carriers (companies that distribute their products through career agents) continue to offer traditional LTC insurance, along with a handful of smaller carriers that distribute through independent insurance brokers. Unfortunately, some of these smaller carriers do not meet our carrier financial-strength screening criteria.
Now, it seems almost inevitable that the remaining carrier pool will continue to shrink. The primary reason for this decline is that carriers are earning historically low yields on the bond portfolios that comprise most of the reserves they hold to back these products. Combined with a claims experience history that is still rather limited, the risk of taking on more LTC liability is becoming too much for carriers.
Where is the LTC insurance market headed?
It’s clear that “asset-based” or “combination” LTC products are going to be the primary offerings moving forward, barring some regulatory or legislative change in the landscape. Nearly every major life insurer, including John Hancock, MetLife and Prudential, offers the combination-permanent life insurance/LTC insurance product, and most are expanding the number of such offerings. It seems likely that these products will be the primary options in the not-too-distant future for consumers who want to transfer some of the risk associated with a long-term care event.
So is traditional LTC insurance, or combination life/LTC insurance, right for you? As always, we recommend evaluating the options with the help of your financial advisor, in the context of your overall financial plan. If you’re between ages 55 and 60 — in our experience, this is the optimal age range for purchasing traditional LTC insurance — you might start that conversation before traditional LTC insurance goes the way of LP albums!