Effective July 29th Genworth Financial will no longer sell LTC policies offering lifetime benefits. Additionally the 40% spousal discount will be reduced to 20%.

The move is the latest in what has become the gutting of the LTC market. In recent months large underwriters such as Prudential, MetLife and Unum abandoned this line of business.

As sales of LTC policies exploded in the 1980s insurance companies relied upon faulty assumptions of life expectancy when designing the product. Exacerbating the problem was an underestimation of the cost and scale of care of disabling, persistent conditions such as dementia. The result was woefully underpriced policies.

Perhaps the biggest driver of losses to the industry has been the low interest rate environment. Insurance companies invest premiums in long-term bonds to subsidize expected benefit payouts. The Federal Reserve has pledged to keep rates low until at least 2014 which will continue to make it tough for insurers to maintain and grow their capital reserves.

Roughly 8,000,000 Americans carry private LTC insurance. In 2010 the average premium was $2,283/yr. Older policy holders paid a higher average premium. For example the typical 75 year old paid $4,123/yr. With less competition in the market due to fewer companies writing LTC policies and low rates forcing underwriters to seek state approval for rate increases the expectation is that the cost of purchasing a LTC policy is headed materially higher.