Two weeks ago John Hancock, one of the largest providers of long term care insurance announced it is withdrawing from the market. It will stop selling new long term care insurance policies. John Hancock currently has sold more than 1.2 million policies nationwide.
What does it all mean? Hancock is the latest in a long line of insurance companies that have left the traditional long term care insurance market. The number of companies selling these “use it or lose it” types of policies is down to less than 20.
Why have so many insurance companies left the market? Because they are losing money on these types of policies. They set initial premiums too low. They also underestimated how long people would live, how much long term care would be needed , how much the cost of that care would increase over time and overestimated how many people would drop their policies before collecting benefits. Finally, the interest earned on premiums they have invested to pay out future claims hasn’t been as high as anticipated.
What does it mean for someone who currently has a John Hancock policy? Existing policies remain in effect although you are likely to continue to receive rate increases in the future. These rate increases may become more frequent since Hancock will not be getting an influx of premiums from younger policyholders to offset the outlay of money paid on claims, now that they won’t be selling new policies.
Is this the end of long term care insurance? No, but the insurance options have changed for the better. I have written about these asset based insurance options for the past few years. (See most recently my 8/15/2016 and 6/15/15 blog posts.)
These options can be better for the consumer because of the ability to lock in the cost with no rate increases. They are also better for the insurance companies who have priced these products more accurately and are better able to know the limits of their financial exposure. As consumers, while we aren’t certainly worrying about the insurance companies making enough money, we do want to see them remain fiscally sound so that they will be there to pay out benefits on our behalf when we need them to.