Hansen today said even if Smith, now back home in Dunedin, passed his head injury assessment protocols he wouldn't play, saying a conservative approach was necessary after two previous head knocks this season.
Smith was replaced in the first quarter of the first test at Eden Park last Saturday after failing his head injury assessment.
"We've decided already, regardless of whether he passes the protocols, that we won't play him next week," Hansen said.
"[Our] long-term concerns have been allayed but we're just going to take our time with him to get him back where he needs to be so he's comfortable and we're comfortable. It's too important for him and for us and the game to chuck him back out when we... it's just not worth it.
"[The current concussion] is not any more severe [than his previous ones]. If he passes the protocols he could play but we're of the opinion that he's had a couple so let's just be a little conservative and not play him. He doesn't know that yet but he will after you tell him.
Smith's absence means Israel Dagg starts at fullback at Westpac Stadium on Saturday, and potentially next weekend in the third test at Eden Park, with Waisake Naholo brought in on the right wing.
Dagg said he had been in touch recently with Smith and felt for him, but that the All Blacks vice-captain was still playing an important role in the team.
"It's pretty simple... we've got to make good decisions," Dagg said. "Obviously it's a big test, it's a big series for the All Blacks but at the end of the day he's got two little kids and a beautiful wife. You just have to make good decisions.
"The whole team is behind him. I know he's at home and he wants to be here. He sent me a text message before - I'm still connecting with him. He's still a big part of this team, I've got a lot of respect for him. He's helping us... he's sent a few messages back for the outsides [backs], he's still a big part of this group.
"It's only rugby - we've got a life after footy to worry about. For him, he's had a few head knocks this year so he's made the right decision.
"Gone are the days when you think you're Superman and strong and just get up and run around and think these things don't affect you. You've seen the research, you've seen what happens. It's great for the game. Obviously players are pretty stubborn, they don't want to go off, but there are rules and regulations now to help players."