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Leaner And Meaner: 7 Long-term Care Insurance Changes You Need To Know

As the U.S. population ages, the long-term care insurance industry is suffering growing pains.

Some insurers have called it quits. Others are suspending sales of the most generous benefits and tightening up underwriting. And many are increasing premiums on existing policies.

Buyers now pay more for less coverage and face tougher health requirements to qualify for the best rates. (See: " Tips for buying long-term care insurance amid rising rates.")

The changes come as insurers grapple with big losses on older policies.

"Many insurance companies priced those policies based on erroneous assumptions," says Christopher Kimball, a certified financial planner in Lakewood, Wash.

Policyholders filed claims at earlier ages and lived longer than expected. Meanwhile, an unusually small percentage of customers let their policies lapse, which meant more customers eventually filed claims than insurers projected. (See: " Health and life insurance tips for the sandwich generation.")

Those factors, combined with historically low interest rates, created a perfect storm to challenge the industry. Insurers invest premiums and use the returns to help pay for benefits. Low interest rates make it tough for insurance companies to get the returns they need to make money or break even.

Here are seven consequences of the industry's evolution and how the changes affect you:

1. Fewer insurance companies offering coverage

"In the early 1990s over 100 companies were selling long-term care insurance," says Murray Gordon, founder and CEO of MAGA Ltd., a long-term care insurance agency in the Chicago area. "Now we have six or eight companies with good ratings."

Allianz Life left in 2009, and MetLife pulled out in 2010. This year Prudential Financial Inc. quit selling individual long-term care policies, and Unum Group exited the group market.

Remaining players, including Genworth, TransAmerica, John Hancock, Mutual of Omaha and Massachusetts Mutual Insurance Co. (MassMutual), are redesigning products.

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