Historically, we’ve trained agents to approach the long term care planning discussion by drawing a picture of the financial catastrophe clients face if they don’t consider proper planning alternatives. The factors we have used include:
• Defining long term care, where it’s provided and how much money is needed to pay for quality and choice.
• Likelihood of needing care.
• Cost of care in the prospect’s geographic area.
• Inflation protection (usually 5 percent compound).
• Probable length of care and time of claim.
Through this calculation we would develop a potential claims number frankly designed to “disturb” the client into action with insurance being the answer. The problem today, however, is that this calculation can lead an agent to a premium that is far beyond the reach of many consumers.
Current reality leads us to several immutable conclusions:
1. Today’s consumers may not be able or willing to pay the price for solving their entire long term care planning problem in one shot.
2. While it may be okay to define the big picture problem, an incremental approach to the solution may be wise.
3. Ultimately, most people make the buying decision based on affordability in relation to the perceived benefit. If an agent creates an insurmountable problem leading to an unaffordable solution, many clients will choose to do nothing.
Over the years I developed many techniques and tools to help brokers describe the risk and sell comprehensive “one-shot” solutions for their clients’ long term care risk exposure. In the bygone era of traditional LTCI, it was relatively easy to create affordable solutions that solved most, if not all, of the catastrophic 10-year dementia claim that many consumers fear.
However, as I’ve discussed in previous articles and webcasts this year, we’ve probably sold far more coverage than is necessary to too few clients. They can sleep easy, and so can we, because as early adopters they received the benefit of a different pricing model in an economic environment that supported it. But times have changed and so must our approach.
Redefining the Problem
Based on data I’ve collected over the past six months, I can help you sharpen your pencil and make more LTCI sales starting today.
Here’s what I’ve learned:
42% of claims last less than one year
84% are received at home
6% are in assisted living
10% are received in a nursing facility
National Median Cost of Care (per Genworth study, 2013)
Home & Community Care: $4,000 ($20/hour x 200 hours/per month—my estimate)
Assisted Living: $3,500/month
Nursing Facility: $6,600/month (average of semi-private and private room rates)
This tells me that more than 40 percent of consumers would benefit if they had $50,000 to $80,000 (in today’s dollars) set aside to pay for care. For about $2,200/year I can provide a couple, ages 59 and 55, with $240,000 ($5,000/month each) of LTCI coverage—more than twice what they are likely to need. They can decide every three years if they would like to increase their coverage by 15 percent (for an additional premium). Or, if they would like to have automatic three percent compounded benefit increases, they can pay an additional $1,000/year now, providing them with a total shared pool of benefits of about $500,000 at age 80 (nearly $10,000 per month each).
What about the other 58 percent of consumers? Data indicates that claims lasting longer than one year average 3.9 years. For the vast majority of consumers, home and community care is their first and last benefit received. There may be some movement between care venues, but the primary reason people purchase LTCI is to get care at home—and they use their policies for that purpose.
One of the bare-bones programs I proposed for our aforementioned couple would provide significant coverage for a longer term home care and/or assisted living claim. If the clients want more peace of mind, they can add to the coverage by increasing the monthly benefit or extending the benefit period. They could also decide to self-fund part of the risk, buy additional policies later, or supplement traditional LTCI with a linked benefit product.
What about the 10 percent of claimants who have care needs that extend beyond six years or who worry that we will enter a period of hyper-inflation? You can still solve their problem, but it’s going to cost them a lot. However, the price consumers pay for not having any coverage will be even steeper.
Explaining long term care planning issues with clarity and solving the client’s problem incrementally is our best current path to LTCI sales success. Therefore, before you launch yourself and your clients on a flight of fancy about how much a long term care claim might cost them, ask for the monthly premium number they can afford, then show them how solving the front end of the risk makes the most sense. A knowledgeable brokerage agency will find you the best coverage they can get for those dollars.
Create a firewall against the obvious risk first and buy your clients time, if they need it, to deal with the infrequent yet costly catastrophic claim.
