A well known, much respected and dear friend BGA asked recently if I could provide some basic financial planning math concerning the relative premium impact of LTCI premium on discretionary income. This is a classic DI argument, why would it not apply to what producer surveys suggest is an even harder sale to make? The response was as you might expect—that he might be asking the wrong question. The uncomfortable truth is we now sell protection almost exclusively to the affluent. If our primary sale is to those who could truthfully financially withstand the risk on their own, what difference does it make anyway?
He then explained that the old LTCI statistics would no longer gain any traction and that he was making a presentation to a financial institution where he needed to demonstrate the wisdom of an asset-based leverage sale and consequent improved ROIs. The fact that he was absolutely spot on in today’s limited sales universe brought me up short. Have we really come to the point where this sale is no longer about risk abatement but only the professed “two-for” brilliance of repositioning underperforming stagnant assets?
There were many among us who were never big fans of statistics. We always knew the great and vast majority of Americans would eventually get caregiving obligations on their boots. The facts are immutable. The overwhelming majority of us will need care at the end and a significant number of those will experience a catastrophic financial hit. The prevalence of emotional and financial conflagration caused by extended caregiving has become an unavoidable placeholder in all planning conversations. The only available answers are: Will you attempt to build an insurance wall to protect your family and yourself, or consciously choose to absorb the blow yourself, or plan to deflect the hit long enough to manage control of its intensity?
Don’t misunderstand. We should all be grateful that the market is now finally heading in a direction that, in my humble opinion, creates a more form fitting resolution of the true nature of the risk. The actual cost of the risk itself has continued to fall on a net premium basis. Specifically, it is not a potential certainty but only a likely contingent possibility. A solution that guarantees a benefit and provides alternative outcomes for it’s owner, whether attached to an annuity or life base, simply accomplishes a better and more cost effective fit.
It is impossible to not repeat a number of popular themes in this column. Therefore, again for posterity:
The built in prejudice in all our conversations must be directed at those who choose to do nothing. Product choice is at an all time high.
It remains our fiduciary responsibility that when confronted with an opportunity to address this specific risk we must offer and hopefully explain all the good and all the bad of all the choices.
Confining your solution options exclusively to only one flavor of policy option is myopic and self-serving by definition.
Asking what the net risk cost to the client is will get you closer to the truth about the cost of chronic illness and how best to more directly provide protection.
If we continue to restrict our sales to the affluent, we will doom our continued participation in providing insurance solutions.
Sales have been stuck for many years at about a half million Americans purchasing something to attempt to brunt the full force of the storm. The only way to move the needle is to loudly and forcefully proselytize the ability to solve the risk`on a supplemental basis. We must change the conversation from, “How much do you need to prepare for a catastrophic contingency?” to, “How little do you need to add to your monthly cash flow to provide a sufficient buffer against losing control of your own claim destiny?”
Is that all there is?
Is that all there is?
If that’s all there is my friends, then let’s keep dancing.
—Peggy Lee, 1969
Other than that I have no opinion on the subject.