Long-Term Care Insurance Outlook Is Shaky
While long-term care insurance has protected many from financial devastation, the turmoil the industry is currently experiencing worries many.
MetLife, one of the industry's biggest players, announced recently that it would stop writing new long-term care policies, although it reaffirmed its commitment to stand by current policyholders. John Hancock, another huge underwriter, recently suspended sales to employers who offer long-term care insurance as an employee benefit, although it continues to sell policies to individuals.Unpredictable premium hikes are one key problem facing the industry.
Long-term policies require that customers keep current on premium payments from the time of purchase up until the point when a claim is made, but there's no guarantee that rates won't rise. Insurance companies need the approval of state insurance commissions to put through rate hikes, and several have sought double-digit hikes this year. The rate increase requests are driven, in part, by the current ultralow interest rate environment, which makes it difficult for insurance companies to earn an adequate return on the investment portfolios that help fund policy payouts.
Insurers need a 10 to 15 percent increase in premiums for every 1 percent drop in interest rates, But some long-term care insurance providers also underpriced their policies due to wrong bets on the way customers would manage their policies. The long-term care market likely will be changing over the next couple of years as the insurance industry tries to come up with more attractive offerings.
Some insurance companies already are introducing less-expensive policies with more limited benefits; others are introducing hybrid life insurance and long-term care products aimed at the affluent end of the market.
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