Performance LTC is John Hancock's newest long term care insurance policy

For over 25 years John Hancock's name has been synonymous with long term care insurance.  Since 1987 over 1.3 million policyholders have chosen John Hancock to meet their potential long term care needs.  Presently, John Hancock pays over 2.8 million in long term care claims every day.  John Hancock has paid out more than 5.7 Billion in long term care insurance claims since 1987.  Together with Genworth Financial, John Hancock has long been a market leader in long term care insurance underwriting and innovation.

With the introduction of its Performance LTC policy, John Hancock is continuing its tradition of product innovation.

How is the John Hancock Performance LTC policy any different?

At first glance the Performance LTC policy looks like any other traditional long term care insurance policy on the marketplace.

You will probably be familiar with most of the benefit options and choices.

• Daily benefit option of $50 - $400; or Monthly benefit option of $1500 - $12,000
• Comprehensive coverage for home care, assisted living and nursing facility care
• Benefit periods ranging from 2 years to 6 years
• Inflation protection of 3% compound or 5% compound
• Shared Care option is available
• Elimination periods of 30 days to 365 days

So, how is Performance LTC unique and different from other long term care insurance policies?

Performance LTC has a concept within the policy called Flex Credits.

What are Performance LTC Flex Credits and how do they work?

Performance LTC has a Flex Account that will build Flex Credits on each policy anniversary.  Flex Credits are not guaranteed.  Flex Credits are calculated according to a formula that takes into consideration John Hancock's investment and insurance experience.  Agents and consumers may analogize Flex Credits to a dividend that is applied to whole life insurance policies.  Flex Credits in your Flex Account may:

• Accumulate at interest
• Reduce premiums
• Reimburse LTC expenses during the elimination period
• Reimburse LTC expenses in excess of your long term care benefit amount
• Pay for services that  can help you to remain at home
• Provide a Return of Premium at lapse or at death

John Hancock has disclosed within its filing that Flex Credits can be negative and that consumers can expect little to no Flex Credits within the early years of the policy.

With older long term care insurance products marketed in the 1990's and the early 2000's many long term care insurance underwriters had to request rate increases due to the declining interest rate environment and due to the claims experience as many claimant policyholders bought Unlimited benefits.

Today, LTC insurance premiums have been markedly adjusted for the low interest rates and long term care insurance underwriters have all but eliminated Unlimited benefits as an option. (Although Unlimited benefits still exists with one company!)

John Hancock, like many underwriters, has reacted to the low interest rate environment by filing for new rates and by eliminating the long tail risk of Unlimited benefits.  With the advent of the Flex Credits feature, John Hancock hopes to benefit its policyholders should the interest rate environment improve and should John Hancock's underwriting experience be favorable.  

How does the John Hancock Performance LTC policy stack up in price compared with other policies?

Admittedly, this John Hancock policy is going to be extremely difficult for consumers to compare and analyze with other long term care insurance options due to the non-guaranteed element of Flex Credits.

Let's take a look at 2 sample comparisons for benefits of $200.00 day, 3 year benefit periods, 90 day waiting periods.

For comparison purposes we will look at current rates for a 60 year old married couple living in Massachusetts.

John Hancock Performance LTC offers two inflation protection options:  

• 3% compound with a graded premium feature (increasing premiums) 
• 5% compound with level premiums

$200.00 day, 3 year benefit periods, 3% compound inflation, 90 day waiting period

60 year old married couple combined rates

• John Hancock $4200.00 (premiums contractually will increase)
• Mass Mutual $5062.08 (level premium) +20%
• Mutual of Omaha $5115.05 (level premium) +22%

Company comparison Spreadsheet 3% compound

$200.00 day, 3 year benefit periods, 5% compound inflation, 90 day waiting period

60 year old married couple combined rates

• Mass Mutual $8401.40 (level premium)
• Mutual of Omaha $8991.46 (level premium) +7%
• John Hancock $13,524 (level premium) + 61%

Company comparison Spreadsheet 5% compound

The immediate takeaway is John Hancock's premiums compared with market rates for 5% compound inflation are very high, 60% above market.  

With Flex Credits, John Hancock could theoretically reduce its future premiums for policyholders. 

However wouldn't it make sense for you to just start 60% lower with companies such as Mass Mutual and Mutual of Omaha? Probably.

Thus, the 5% compound benefit with level premium structure does not appear as the option John Hancock will try to market.

We can assume the design John Hancock will market is the increasing premium structure with 3% compound inflation.

With this increasing premium design on the 3% compound inflation option, John Hancock's premiums are contractually scheduled to increase over the years, rather than remain level as competitor policies do. The Flex Credits are designed to offset the premium increases.  Within John Hancock's illustration it provides 3 hypothetical scenarios based upon:

1. No Flex Credit (declared portfolio rate of 2.5% and total claims 65% higher than current expectations)
2. Adverse experience (declared portfolio rate of 4.5% and total claims paid 35% higher than current expectations)
3. Current assumptions (declared portfolio rate of 6.0% and total claims paid 10% higher than current expectations) 

John Hancock illustration

Waiver of Premium eliminated; Stay-at-home benefits not specifically covered by the insurance contract

John Hancock has also made a few other modifications to its new contract, removing features that are fairly standard on other long term care insurance policies.   

John Hancock has eliminated the Waiver of Premium provision that waives insurance charges when benefits are being paid out. Waiver of Premium has always been a fairly standard feature of long term care insurance policies however the John Hancock Performance LTC contract does not include Waiver of Premium. The Flex Credits account may pay the premium if Flex Credits exist.

Additional standard benefits that many other long term care insurance policies include and will automatically pay for to help policyholders stay-at-home such as benefits for home modifications, durable medical equipment, medical safety alert systems, and caregiver training are also not covered expenses under the John Hancock Performance LTC contract. Once again, the John Hancock Performance LTC contract will allow the Flex Credits account to pay for items such as durable medical equipment, caregiver training and emergency medical response systems should Flex Credits exist.

Conclusions

Consumers today have many choices with the purchase of long term care insurance.  While we have seen consolidation to a large extent with the underwriters still offering traditional long term care insurance policies such as John Hancock offers, asset-based policies that offer long term care insurance if care is needed, and life insurance if care is not needed ---all for a fixed guaranteed premium are hugely popular.   

For John Hancock to be successful in marketing its Performance LTC policy consumers will undoubtedly have to buy-in to the John Hancock Flex Credits proposition of not only stabilizing the increasing premium design of the Performance LTC policy but also in the Flex Credits account covering additional expenditures while on claim such as Stay-at-Home benefits and the Waiver of Premium benefit.

Consumers today have every right to be wary of an increasing premium design that can only remain affordable IF the insurance company successfully underwrites properly to not have claims and IF the insurance company receives an assumed high interest rate on its general account reserves.  These assumptions might never happen, but the increased premiums that you will have to pay are guaranteed to happen.  

Certainly, in viewing the premiums above current level rates offered by an A++ rated mutual company such as Mass Mutual will be hugely attractive to consumers.  Especially when viewed in the light that Mass Mutual, for example, has never once requested a rate increase on any policy it has ever sold in any state.  

In addition, asset-based policies with fixed guaranteed premiums and Unlimited long term care benefits such as the OneAmerica Asset Care policy; or even the Lincoln Moneyguard policy also attract significant consumer interest.  With this landscape as a backdrop it will be interesting to see if consumers buy-in to this new John Hancock policy.  My conclusion is this policy will have to be "sold" (by insurance salesmen, marketers, "financial advisers") more often than it will be bought. 

See also:  New York Life AARP pitches the most expensive long term care insurance policy ever.

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LTC Partner is an independent long term care insurance brokerage serving consumers nationwide since 1998.  We work with the leading long term care insurance companies including John Hancock, Lincoln Financial, Mutual of Omaha, OneAmerica/State Life, Pacific Life, Thrivent Financial, Nationwide, Transamerica, Forethought, and more.

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Jack Lenenberg