The need for long-term care has continued to rise in America for the past 20 years and this trend is not likely to change any time soon. And the cost of this care is rising just as quickly, much faster than the general inflation rate. The best solution that many financial planners used to suggest to their clients was to purchase long-term care insurance in order to cover these costs.

But the long-term care insurance industry has fallen on hard times due to several factors. John Hancock Life Insurance Co., one of the top three flagship providers of these policies, recently announced that it is exiting this market in 2017. This decision effectively deals another blow to an industry that is already struggling to meet its obligations in the wake of low interest rates and consumer complaints. (For more, see: LTC Coverage Not a No-Brainer.)

The Decision to Exit

John Hancock’s decision was made due to several factors that have made it very difficult for insurance companies to be able to profitably offer standalone long-term care policies. The company issued a memo to all of its distributors that told them that the company will cease to offer new LTC policies after February of next year, InvestmentNews reports. It said, “After a recent analysis of the macro-economic trends facing the long-term care (LTC) insurance industry, we have made the difficult decision to discontinue sales of our individual LTC insurance policies in all states.”

A Hard Sell

Several trends in the market have combined to make long-term care insurance a hard sell for many advisors today. One key factor is that many carriers miscalculated their pricing on policies that were issued 10 or 20 years ago, and are now being forced to raise the premiums on them in order to keep them in force. This has caused many older couples who purchased these policies at that time to abandon their coverage because they can no longer afford the premiums. (For more, see: Long-Term Care Insurance: Who Needs It?)

And the high claim rate that long-term care policy holders have has heavily taxed the portfolio reserves of many carriers. At least half of all seniors today will need some form of long-term care before they die, which makes it extremely difficult for insurers to be able to offer competitive coverage. Low interest rates have dealt another major blow to long-term care insurers, as they have not been able to earn rates of return that are commensurate with what they were in the past.

Hybrid Life Insurance Policies

Fortunately, there appears to be a viable solution to this dilemma for both consumers and insurers. Hybrid life insurance policies that have accelerated benefit riders attached to them are rapidly gaining in popularity. They eliminate the chance that the policy holder may pay a great deal of money into the policy and then get nothing in return if they never need the coverage. The consumer is guaranteed to get either the cash value, the death benefit or an accelerated benefit that can be used to pay for long-term care expenses if necessary.

The Bottom Line

John Hancock’s exit from the standalone long-term care insurance market may ultimately signal the beginning of the end for this industry. The company did state that its current outstanding long-term care policies will not be affected by this decision. It will also continue to sell hybrid life insurance policies with long-term care riders for the foreseeable future. These policies most likely represent the future of long-term care coverage for the average consumer. (For more, see: An Overview of Hybrid Long-Term Care Policies.)

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