The development and rollout of new standalone long-term care insurance products has been almost non-existent for a decade. Aiming to break that trend, New York Life Insurance Company recently rolled out a new and innovative long-term care insurance product. This new product brings a shot in the arm to a market that has suffered a number of challenges over the past decade, as many large and reputable insurance companies have pulled out of the market and total sales have dropped significantly.
The steep decline in product development and insurance company participation in long-term care insurance is real and needs to be addressed. According to Forbes, the exact cause of the decline is nuanced and complicated. In reality, the long-term care insurance market has suffered not because of one issue but a perfect storm arising from a variety of issues. In part, the insurance companies themselves are at fault because their assumptions were off. However, no one really anticipated such a drawn-out period of low interest rates.
Low rates have hampered the ability for insurance companies to be creative and offer better rates on certain products, including long-term care insurance. Insurance companies also miscalculated the lapse rates on long-term care insurance and ended up having to pay out on more policies than they priced premiums to cover. All of these factors have conspired to keep many companies out of the market. These dynamics have also forced many companies to raise premium rates on existing policies, creating ill-will in the consumer market place.
Instead of a strong focus on new long-term care insurance products, the market shifted over the past decade toward so called “hybrid” or “asset” based products that couple long-term care benefits to annuities or life insurance policies. These hybrid policies seem to appeal to many consumers because they are typically paid with a set number of premiums or with a lump sum payment. This can be attractive at a time when traditional long-term care insurance policies are experiencing rate hikes. Additionally, the “use it or lose it” aspect of traditional long-term care insurance is not an issue with hybrid policies because a policyholder will get other forms of insurance coverage in return. However, the downside of hybrid policies is that they are policies that are trying to do two things at once, so they are rarely ever the most efficient life insurance coverage or long-term care insurance coverage possible. In essence, people are giving up a bit on both ends to get a combined product.
Read the full story at Forbes.