Despite being around for nearly 40 years, and enjoying preferential tax treatment for nearly half that time period, long-term care insurance has struggled to gain momentum in the marketplace. In fact, low interest rates, coupled with low lapse rates, and rising longevity, have come together to drive up long-term care insurance premiums significantly, leading LTC insurance purchases to decline nearly 70% from their peak in 2002.
However, a new approach to long-term care insurance pricing – the Performance LTC policy from John Hancock – is aiming to bring LTCI premiums down. Ironically, the new policies have eliminated any kind of pricing “guarantee” to prevent premiums from rising, but combined that change with an opportunity for policyowners to benefit if investment and claims results are favorable in the future, by accumulating “Flex Credits” that, like dividends from a participating life insurance policy, can be used to reduce future premiums and even allow LTC premiums to vanish, altogether.
The good news of this structure is that it is uniquely suited to benefit if interest rates rise in the future (unlike hybrid life/LTC or annuity/LTC policyowners who may suffer in a higher rate environment). The bad news, however, is that because Hancock is not actually a mutual insurance company, it will still face a fundamental conflict of interest in deciding how much to pay as a Flex Credit to policyowners, versus a dividend to shareholders. Nonetheless, though, the reality is that by allowing LTC insurance premiums more flexibility, Performance LTC may still potentially be less expensive LTCI coverage in the long run!