Long term care (LTC) bonds, it seems, could be set to go the same way as endowments.Following severa...
Long term care (LTC) bonds, it seems, could be set to go the same way as endowments.Following several years of poor investment returns, PPP lifetime care has decided to withdraw its product. In the meantime, its existing policyholders could face substantial premium hikes if their plan is to meet care costs ' either that or they reduce their benefit, or eat into their capital.
Scottish Amicable is the only other provider to offer an LTC bond and while it has not announced any plans to pull the product, it will be subject to review later in the year. Given the climate of low investment returns, it too is likely to face a similar dilemma.
For some time LTC experts have been saying insurers' growth forecasts were too high.
However, is the situation as dire as PPP's exit from the market suggests? Does a hike in premium necessarily render the LTC bond too expensive? There is a belief that PPP acted on a knee-jerk reaction ' led perhaps by its parent AXA ' and the value and security offered by the products is such that some clients would be willing to pay more. Only time will tell how the market responds.
With only 12,000 LTC bonds in force, the problem is clearly not on the same scale as the endowment fiasco. But that does not mean it will not have an impact on what remains a fledgling market. With elderly people's health and finances at stake, it would not take much to damage confidence in LTC insurance products.
Policyholders' responses will ultimately depend on how providers manage the situation, but will also depend on the way products were sold in the first place.
Consumers are usually loathed to plough through the small print in product documentation. Hopefully IFAs worth their salt, told clients that premiums were by no means guaranteed, however, as we have already discovered with endowments this does not always happen and even if it does, the message does not always get home.
If this is to be an ongoing problem perhaps the best solution will be to use insurance and not an investment vehicle. If you want to cover risk, use insurance and not another risk-based product.
Rachel Williams, editor
