John Hancock Long-Term Care is trying to help long-term care insurance (LTCI) buyers protect themselves against rising long-term care (LTC) prices while also reducing its exposure to investment risk.
John Hancock, Boston, a unit of Manulife Financial Corp., Toronto (TSX:MFC), has introduced a new LTCI policy that comes with a benefit increase option that takes the form of an automatic crediting formula rather than a traditional inflation adjustment feature.
In the past, many LTCI carriers have encouraged customers to buy simple or compound inflation adjustment features that tie increases in benefits to increases in the general inflation rate or to increases in another price index.
John Hancock now is offering an option that ties growth in the policyholder’s benefits to the investment earnings at a segment of John Hancock’s general account. Benefits can grow without the policyholder having to pay any additional premiums, the company says.
In recent years, the Federal Reserve Board has worked to hold interest rates down to unusually low levels, to help banks build profits and reduce pressure on home buyers, corporate buyers and other borrowers who have taken out variable-rate loans. Sellers of LTCI coverage, long-term disability insurance and other insurance products that depend at least in part on revenue from long-term investments in bonds have said that the low rates are cutting investment revenue and reducing the profitability of the products with a long-term outlook.
Pegging benefits growth to general account investment returns may help policyholders share in the gains when bond rates go up while protecting a carrier against assuming investment risk if rates stay, or if rates fall even further.
In addition to providing the automatic crediting formula, John Hancock will be offering policyholders an opportunity to increase benefits 10% every 3 years through age 75 without answering questions about health or undergoing a medical exam.
Access to the automatic buyup feature will be subject to some restrictions, John Hancock says.
“Premiums for the additional buy-up coverage will be based on the policyholder’s age on the option date,” John Hancock says.
The new benefits increase feature will be more affordable than traditional inflation protection features, and John Hancock is hoping the feature will make the product more appealing to younger consumers and healthy older consumers, the company says.
Customers who still want a traditional inflation protection feature can buy the product with a consumer price index inflation protection feature or a 5% compound inflation option.
The product is available in 36 states, and John Hancock says it has filed for permission to sell the product in the rest of the United States.