For the majority of readers, you first become eligible for Medicare during the seven month enrollment period that begins three months before your 65th birthday. This period includes the month you turn 65, and extends for three months beyond. This is a natural milestone in many of our lives when our thoughts turn seriously to retirement.
As I wrote in “The Advisor’s Guide to Long-Term Care 2nd Edition”, long-term care solutions and alternatives should be part of every retirement planning discussion. This sentiment was echoed by the landmark study “Land This Plane”, wherein 67 percent of respondents agreed that the “long-term care problem should be a mainstream financial planning requirement.” Hear hear!
Although the news regales us with reports of uncertainty around retirement, when we actually look at the data we find that folks are retiring right on schedule. The further it recedes into the future, the harder it is to pin down, so people answer surveys saying they intend to work later, or to retire earlier. This is natural when you stop and think about it. But once the date nears, everyone’s retirement date huddles around the same number: the median age at which workers expect to retire is 65 “and has remained stable at that age for most of the history of the Retirement Confidence Survey”. Meanwhile, the median age at which workers actually retire is a constant 62.
The RCS has found through the years that while nearly one out of two workers has retired earlier than they expected, just 1 out of 20 have retired later than they had planned. (This survey is an interesting reminder that life never works out how we imagine, and that polls about what we plan on doing should be taken with a grain of salt. - If I had a nickel for every great thing I planned on doing…) So, are these positive or negative reasons that cause individuals to retire early? Typically, when people leave the workforce sooner than planned, it’s not generally good news — two-thirds of the time it’s due to poor health. Only a quarter of the time is it because they could afford to.
Don’t call us, we’ll call you!
Among the benefits of being a field marketing organization are the many visits we receive from our carrier partners. Any time a new product is launched, we can count on one of our marketers coming to town to share its virtues. Allow me to let you in on a little secret — when the conversation turns to pricing this is what we usually hear, “Our product is most competitive among couples, and for those in their early 50s.” This is neither a knock against any one carrier, nor should it be seen as a real scoop. Insurers price their products most aggressively for the business they hope to attract.
But what does this say about those applicants in their mid-to-late 60s? Are they the forgotten clients, the desaparecidos of LTCI?
To a certain extent, applicants between ages 65 and 75 (today’s upper age limit for an increasing number of carriers) face a wary discrimination. It goes like this, “Long-term care insurance is not new. It’s been around for close to 40 years. You’ve had a long time to think about it. So, all of a sudden today you’re interested? Yeah, right.” The carriers should be mindful, since there’s statistical evidence that adverse selection rises at older ages. According to one un-named carrier, declination rates rise precipitously by age (One might make the counterargument that rising declination rates at older ages are not necessarily evidence of adverse selection, but evidence of underwriting paying more scrutiny to older applicants who are less healthy at older ages.):
|Age band||Decline Percentage|
|55 to 59||37%|
|60 to 64||39%|
|65 to 69||46%|
|70 to 74||
|75 to 79||
So, to make inroads among the “Medicare Generation”, it’s incumbent upon us to either reach those who are not already adversely seeking us, or to overcome what is sure to be an affordability objection. After all, one insurer does report that nearly 30 percent of its applicants are over the age of 65. Let’s see what approaches we might take.
It would be wonderfully original if I could avoid making the same set of recommendations I made when recently discussing the Gen X market – namely consider your inflation protection options, make targeted use of combination products, among other things. But we’re going to find that impossible.
First, let’s address the elephant in the room.
One of the reasons combination products are increasingly popular among this age group (average age of purchase being 67) has to do with a phenomenon we described earlier. If you’ve not purchased long-term care insurance by your mid-sixties, it could be said to have “passed you by” both in terms of price and health (One Consumer Study of buyer trends reports the average buyer is a “married female Caucasian age 55 – 64”). Husbands in particular — who are more concerned about insuring their wives — may find themselves uninsured in their late 60s.
These men who’ve lived with the attitude that they’d never need insurance may be swayed by the guarantees of a combination product. As one carrier puts it, “Their care is covered. Their life is covered. Their decision is covered.” — it’s as close to a sure thing as you can get.
Gaining increasing attention this year thanks to favorable IRS rules are longevity annuities, a term we use to include both QLAC’s and DIA’s. Although not strictly a long-term care planning tool, longevity annuities can be exceedingly useful for those nearing retirement who are concerned about outliving their money. The most common example suggests purchasing a DIA at 65 which will annuitize at age 85.
We should add — not all combo products are necessarily easier to qualify for than traditional long-term care insurance. With the exception of annuity-based products, most life-based products’ underwriting guidelines will suggest that if your client cannot qualify for long-term care insurance, you should probably not submit him or her.
Next in our arsenal are all the changes we can make to the benefit design of a policy in order to create a policy a Medicare Generation client would find attractive. But let’s not paint with a brush that says, “Because the individual sitting across from me is 65, I will therefore always recommend XYZ.” Is that suitable? Hardly.
Instead, like any client sitting across from you (even those seated 2,000 miles across from you), you’ll ask good questions and listen. (As I was reminded recently, we’ve got one mouth and two ears for a reason!) Since we’re having a retirement conversation — where does your client plan on retiring? Will there be family nearby? What kind of infrastructure of support does she expect?
Worth discussing – not just with your clients, but among our colleagues as well – are a number of points which might be raised as a result of her answers:
- When there’s little informal support expected, might your client suffice with a plan that reimburses home care at just 50 percent or 75 percent of her total facility benefit? What about 0 percent home care (i.e., nursing home care only)? Clearly, everyone wants to stay at home — and most LTC claims are now paid for care received at home. But the vast — and I do mean vast — amount of home care in this country is provided by family, even in the presence of paid, formal care.
When you’re faced with a client who will have no family present to supplement three to four days per week of care, your client may find herself more suitably cared for in a facility. Meanwhile, cost of care surveys have consistently supported that assisted living runs no more than 50 to 75 percent the rate of nursing facility care — this is another place to cut costs.
- What’s the correct inflation protection choice for someone in her mid-sixties? According to the Social Security Actuarial Life Table, men and women reaching age 65 can expect to live to 82 to 85 years of age on average. Of course, the longer you live, the longer you can expect to live — that’s how we end up with some lucky outliers making it to 115. A fun fact known as the “compression of morbidity” also means that the older you live the more likely all these chronic diseases are to pile up on you right in the final years of your life. There is always that to look forward to.
But are we better off choosing an inflation choice with a 20-year cap, or perhaps a 5 percent compound two-times or three times cap? The average age of claim in long-term care insurance varies between ages 79 and 82 – at which point premiums typically go on waiver, but benefits generally continue increasing. Most agents who’ve toggled the various inflation options on illustration software are aware how steeply the inflation rider influences the final price.
Is it worth taking the money one might save on a rider and instead “overbuying” the daily benefit right from Day One? Possibly. This is the sort of cost-benefit analysis you simply have to perform and share with your client.
- Too many agents are still saving money by choosing a 90 day elimination period. How many? According to the American Association for Long-Term Care Insurance (AALTCI), it’s being sold on over 90 percent of policies (2012 Sales by Elimination Period, “90 – 100 Days = 92.3%”.) If I could wave a magic wand and make one thing disappear in all of LTC insurance, it would be this stupid idea. Even for a 65 year old who buys a $200 per day benefit that increases by 3 percent per year, in 20 years if she goes on claim, she would incur a deductible of $31,560.
I ran a quote with one particular carrier, comparing a 90/0 day option against a 0/0 day option (one in which days of HHC offset the 90-day elimination period — a very common option nowadays) and by taking the longer elimination period the client saves $769 each year. Sounds like a lot, doesn’t it? But to recoup these savings after shelling out the first $31,560 on her claim, she’d first have to pay premiums for 41 years... to age 106. Are you starting see why I dislike elimination periods? Offsets only work if a claimant uses Home Health Care before transitioning to Nursing Home Care. Statistically, transition events are rare: 80 percent of claimants never make a transition at all.
I ran a quote with another carrier comparing 90/90 versus 0/0, which saves our client a wholesome $955 each year. This time, our 65-year-old would recoup her deductible in just 33 years, at the ripe age of 98.
Of course, these are just numbers and cents. It misses the larger point, one which only dawns on those of us who’ve taken the real calls from family at claim time or who’ve read the vicious reviews of real-life claims in the newspapers or the reasons why our industry’s claims practices have fallen under scrutiny: we brought it on ourselves.
You see, everyone wants to save a nickel the day they take out their policy. But the day the children file a claim, no one wants to wait even ten minutes — let alone three months (!) — for their money. The children have no idea why their Mom or Dad took out such a long elimination period and angry policyholders take to the forums to decry insurance companies who will “do anything to wriggle out of paying a claim”.
Meanwhile, studies of our claims-paying practices have shown that long-term care insurance has a great claims-paying record — one to be proud of. Instead, our problem is one of miscommunication. Most claimants either don’t understand their triggers or their elimination period, according to both the U.S. Department of Health & Human Services (HHS) Clinical Audit (April 2010) and a professional claims facilitator. Funny thing is, every agent I talk to says, “It’s not me!” I guess it’s always the other guy.
In any event, if you believe first-day coverage is right for your clients, get it while you can. Like other “de-risking” behavior taken by long-term care insurance carriers of late such as capping benefit periods and implementing maximum ages, first-dollar coverage is not long for this world, I predict, since it induces people to claim sooner and it’s sold almost negligibly. There has been talk of eliminating some first-dollar benefits under MediGap Plans to hold down costs as well.
Studies of buyer behavior
For a few decades, our trade group AHIP has conducted a celebrated study of buyer versus non-buyer behavior that remains the gold standard. However, to both bolster their new product designs and boost the sales performance of their distributors, several carriers have each gotten into the act of late. As a student of the business — which you must be — you are encouraged to get your hands on these consumer studies when they come out in order to learn the latest findings. Why do some people buy and some do not? What are their motivations, and price points?
Most people who purchase long-term care insurance are younger (age 59) than those who do not (age 64). Surveys report that one-half of purchases were precipitated by the decision to begin retirement planning, another third were triggered by one or the other spouse actually retiring. These findings help explain some of the trends we’ve been discussing around the ages of our buyers.
Buyers and non-buyers live in two different worlds. When those who buy coverage look at long-term care insurance, they see a product that helps “protect assets”, “avoid dependence” and “afford care”. Those who don’t buy seem unconcerned with the positive benefits of the product and instead are fixated on the negatives: they are overwhelmingly concerned with the imagined price of the product — while ignorant of the true cost of care — and peeved that insurers will raise rates. In fact, one study found a hefty 74 percent of non-buyers citing cost as their barrier.
Adding to these views, buyers are “planners” (by a two-to-one margin they strongly agree with the importance of planning for the possible need for long-term care). Another survey reveals that 77 percent identify long-term care insurance as an important part of financial planning for retirement.
On the other hand, “non-planners” remain in denial, and expect family to care for them. Planners prefer to protect their family from the burden of caregiving, and to maintain their own independence by receiving care in the most desirable setting.
By asking a few probing questions, you can tease out the “planning personality” of your client. Has he or she purchased other insurance and investments products? Has he or she created a will, POA and advance directive? Does he or she contribute to his or her IRA or 401(k)? Does he or she work with a financial planner? Does he or she take responsibility for his or her health (by not smoking or by exercising regularly)? If you answered yes to all these questions, this is your ideal client!
Meanwhile, assuming such non-buyers can be persuaded at all, we know what we have to do:
- Avoid making appeals to “planning”, which would be lost on such personalities.
- Gently educate about the cost of care while avoiding statistical arguments we cannot win.
- Vastly reduce the price point or non-buyers simply won’t take our calls. (For instance, among ages 59 to 65, interest in purchasing more than doubles when prospects are presented with an option that represents a lower cost alternative, according to A Study of Consumer Behavior.)
- Simplify the complex. (People do understand it can be a lengthy process and one they only ever want to make once. But confused clients don’t buy.)
- Own a policy on yourself. (This was a deal breaker! Furthermore, since long-term care insurance is seen as an asset management sale, clients expect their agent to understand the financial issues faced by seniors.)
Tragically, surveys report that even our “planners” are generally skeptical of both advisors and the insurance companies we represent. This suggests we have another job to do:
- Re-establish not only our own credibility, but also the financial integrity of the carriers we represent. (A full 70 percent of one survey’s respondents would buy insurance from only a well-known company.)
Ever wonder why so much myth and misinformation seems to pervade those comments you read online? It’s because our clients live in an echo chamber of questionable quality: only about 18 percent first receive long-term care information from us. While educating themselves, 70 percent discuss the issue with friends and family or read brochures. One-half of our clients read magazine articles (good heavens) and one-third read newspaper articles (ay caramba). It’s incumbent on us to ensure that our clients are not being fed inaccuracies which could walk them off a plank into an ocean of doubt.
Most clients planning retirement share similar dreams: owning a beach home or mountain retreat, pursuing a relaxing hobby like golf, volunteering, spending more time with family, grandchildren and friends, and travel. At the same time, they realistically acknowledge threats which could derail these plans such as outliving their money or declining health.
In spite of this, most find gloomy statistics tiresome and prefer to hear testimonials showcasing the positive stories of LTC insurance in action. I find this both refreshing and exasperating — the number of testimonials I’ve shared in my agency newsletters is too numerous to count, yet I can report these are some of the least popular links viewed by our producers. Have today’s agents simply forgotten how to incorporate a testimonial into their presentation?
For those of you in need of an all-purpose video testimonial, allow me to direct you to the Makes a Difference Campaign. “Makes a Difference” is free to the entire long-term care insurance industry, a no-strings-attached gift from the National LTC Network. Anyone can upload a non-commercial testimonial, and share any which exist. The larger the video library grows, the more useful it becomes for all of us.
We’ve also learned over time that clients dislike being educated in the same environment where sales take place. Thinking this through, it stands to reason that younger applicants will have been presented long-term care educational materials in the low-pressure worksite, which accrues to everyone’s advantage. While the “Medicare Generation” may not have benefited from this approach, it stands to reason that they might respond to state-of-the-art seminars and workshops. This also creates a built-in “two-call close”, eliminating some of the pressure many find off-putting, particularly at a time of increased emphasis on elder financial abuse and scam alerts.
We can draw a straight line from buyer behavior to the field of neuroscience, a topic whose many applications in the field of sales and marketing I’ve covered with fascination, even as some readers have recoiled at the techniques. If anything, we are forced to confront the imperfections in the ways our own minds work; this does not mean we are selling untruthfully.
Let’s re-examine some of the most popular techniques and how they might be implemented for our “Medicare Generation” clients to help them reach a decision that’s suitable.
First, a recap of all the behavioral marketing techniques I’ve previously chronicled:
- Decoy Pricing
- Coupon Pricing
- Hyperbolic Discounting
- False Consensus
- Three Options
- Loss Aversion
- The Frugal Wow
- Contextual Triggers
- Optimism Bias
- Confirmation Bias
- Choice Support Bias
- Swimmer's Body Illusion
- Sunk-Cost Fallacy
- Gambler's Fallacy
- Buyer’s Stockholm Syndrome
- Availability Heuristic
- Stereotypical Thinking
- Dumbstruck Effect
- Color Theory
- Scarcity / FOMO
- Social Proof
- Acknowledging Resistance / Reverse Psychology
- Reframing of Price Perceptions
- Charm numbers
Before we explore the best approach, first a caveat. Not only are seniors biologically more trusting than their younger counterparts, but we might be the first line of defense in identifying mild cognitive impairment in the field. That’s a heavy burden.
Failing at this can leave an agent liable for ethical violations — or worse. Some have even suggested having the client’s lawyer or broker present to audio- or video-tape your presentation so as not to take advantage of your client’s bias or possibility of cognitive impairment.
The latest research gives us great language to use when working with the “Medicare Generation.” In research which looked at the “fourfold pattern” across various age bands, it was discovered that “the closer you get to needing LTC, the more fear arousal backfires.” (Big chance to win a lot, Big chance to lose a lot, Small chance to win a lot, Small chance to lose a lot.)
Specifically, when speaking to clients in their seventies, we are told that best results will be achieved by using either “emotional gain” stories or “low-risk loss” scenarios. For those not fully acquainted with the research, allow me to explain:
- Emotional gain: in this kind of story, you will avoid probabilities and statistics. Instead, relate to your client how long-term care insurance has positively impacted someone else (here we go with those darn testimonials again!)
One of the takeaways from this research is that there are many ways to re-frame the exact same information; couching it in the form of a story allows us to add an emotional payload. Buyers at a wide range of ages are far more susceptible to “emotional gains and losses” than to the industry’s old standby, the “high-risk loss” scenario (e.g., 70 percent of people over the age of 65 will need some form of long-term care).
- Low risk loss: People at the older ages are risk-averse and willing to pay a higher premium when presented their risk in this fashion. In other words, they respond best when told their risk of loss is low (e.g., “just one in six older Americans will experience a long stay in a nursing home”) — but that risk could be substantial (e.g., “nursing home stays cost on average $75,000 per year in the U.S.”).
Please keep in mind that when dealing with younger age groups, your strategy will differ — this advice is specific to ages 70 to 79. In fact, for applicants aged 40 to 69, the researchers suggest flipping the script and using stories of “emotional loss” (i.e., the tragedies others have endured through lack of long-term care insurance).
The greatest gift
We needn’t spend a great deal of time on the last idea — after all, it was presented not long ago in the Wall Street Journal by RetireMentors columnist Robert Klein, CPA, CFP, CLTC “Long-term Care Insurance Makes a Great Birthday Gift.” You may have heard the old saw, “One mother can take care of three children, but three children cannot take care of one mother.” I don’t want to present this idea as a terrific sales idea — because it’s not — but I would like to discuss it.
Although I generally praised Mr. Klein’s piece, what I refrained from saying was that in all my years of practice I’ve never actually seen anyone pay for their parent’s policy. Have you? I wish they would! It makes infinitely more sense than paying for their parent’s care — something I’ve seen time and time again.
Part of the difficulty with this strategy has to do with the logistics of the sale. It requires a perfect alignment of sun, moon and stars — a presentation which includes the children from the start; children who agree with the necessity of long-term care insurance — not those who object to the plan, “Mom, you don’t need this, we will take care of you!”; a parent who desires the insurance but finds it unaffordable; children who are willing to bear the freight and who volunteer to pay; and a parent who is not too proud to accept the help.
Although the emotional bottlenecks are high, the rewards are much higher. Now, considering the adult children are oftentimes protecting their own inheritance, let’s add a final twist: adding Return of Premium (ROP).
With ROP, not only is the family’s quality of life significantly enhanced, but the premiums spent protecting Mom and Dad’s assets are returned to the Baby Boomer children who paid them – minus claims paid.