Many long term care companies are getting out of the business; many of those that are staying are planning significant premium rate increases. It’s not a question of whether these changes are going to upset old clients and make prospects uneasy – the answer to that is an unqualified yes. The real question is whether you as an agent are willing to make the necessary changes to stay competitive in this market
Those agents that continue to address the marketplace in the same old way with the same old presentations will be facing fewer and fewer sales and a corresponding decrease in income. On the other hand, those willing to redefine their prospecting, marketing and sales techniques will hear opportunity knocking at the door.
For years, many agents have assured prospects they need not worry about future rate increases, with this being a particularly strong point in a sales presentation. These claims were based on previous history, but in fact had no basis in reality. There has never been any sound actuarial or statistical data indicating that long term care insurance policies were in any way immune from rate increases. To the contrary, anyone who cared enough to look into the matter even a little realized increases had to come sooner or later.
So here we are like overmatched fighters facing a barrage of punches: * Fifty percent rate increases are being filed by companies and approved by state insurance departments. * Companies are leaving the business altogether. * Those companies staying in the market are increasing renewal rates and new policy premiums.
The key to surviving is to stop getting hit. To do that, you need to change your tactics.
The day of the one-size-fits-all spreadsheet salesperson is over. Way too many presentations have been based on a standard daily benefit approach: The agent goes out, gets a number of quotes and then puts them on a spreadsheet that is subsequently put in front of the prospect. The theory, of course, is that after seeing evidence of all the agent’s efforts, the prospect follows the agent’s advice and chooses the lowest premium.
Although this approach does eliminate a lot of competition, it tends to be a bit shy on reality. For one thing, it requires the assumption on the agent’s part that all the different LTCI needs can be met with the same standard benefit package. If we have learned anything about long term care services and patient needs, it is that they differ from place to place and person to person.
In the new long term care marketplace, benefits should be designed based on individual needs rather than standard dollar amounts. Now more than ever, the actual cost of LTC benefits needs to take into consideration the client’s available income along with any insurance.
Addressing the realities of the LTC marketplace will result in a more knowledgeable agent who, in turn, will provide better information to prospects and allow them to make more educated decisions. Ideas for change Let the prospect learn about the cost of long term care by participating in a needs-analysis worksheet. The use of standard, across-the-board numbers like $100 per day or $150 per day must be replaced with more realistic numbers that the prospect not only understands but also can see how they have been calculated.
To do this we use a long term care calculator that takes into consideration the actual dollars an individual has available for the possible LTC need and subtract that from that the actual local cost of LTC. Note we always suggest the use of local cost rather than national or state averages. There are a few variables we need to keep in mind when using the LTC calculator – one being a couple would use a lower LTC factor than an individual.
The LTC factor is the percentage of income a person can allocate reasonably to the cost of long term care services. We like to use a 40 percent LTC factor for couples and 85 percent for individuals. The reason we suggest a 40 percent factor for couples is that historical evidence suggests the cost of living for the spouse not using long term care services doesn’t drop significantly, and in many cases it increases. Although extensive research was used to arrive at these percentages, they aren’t set in stone, but they must be based in reality.
The actual percentage you load into your calculator may vary. What is important is to keep in mind that the number you use is rooted in actual experience in your local marketplace. It is important that you list only those sources of income that are guaranteed for life. Fluctuating income sources from investments that are subject to significant fluctuations in their underlying value shouldn’t be used in the LTC calculator. They should only be considered at their true value at the time of the need.
Start by loading the calculator with all guaranteed income sources available to the prospect. Data for joint cases should be listed separately. The reason for this is that in many cases there is a significant difference between the need and costs from one spouse to the other. All entries should be listed on a monthly basis. The total of all income sources is then divided by the LTC factor. This gives you an out-of-pocket amount available for monthly long term care services. Then the cost of prescription drugs must be taken into consideration. After subtracting that, the result is the net available for long term care monthly services. This ends the first section of your worksheet.
Something commonly missed by many LTCI salespeople when dealing with retired couples is the “lifetime income component.” All too often, agents assume that the death of one spouse will have little or no effect on the income of the other. However, in many cases, particularly when the majority of income is derived from one spouse, drastic changes can occur upon that spouse’s death.
A friend of mine’s parents are a good example of this. His father was a blue-collar worker his entire life. When it came time to retire, he had accumulated a nice pension from his union. This pension, combined with Social Security, gave him and his wife a comfortable income without tapping into their meager savings. Everything went fine until my friend’s father passed away a few years after retiring. This is when my friend came to me in something of a panic. As it turned out, his father chose to take a 100 percent pension payout during his lifetime. As such, upon his death, payments from his retirement plan would cease, leaving his widow with nothing but Social Security and whatever she could earn from their savings.
When you’re working with a single person, it is important to change the percentage used for the long term care factor. For a single person, we suggest an 85 percent LTC factor, keeping in mind that any money required for expenses that would continue after entering a long term care facility should be taken into consideration.
Now we have a system in place that allows us to come up with a realistic number for LTC costs and that allows the prospect to see how those numbers were calculated.
In addition to the aspect of actual insurance required, we need to address the product availability aspect of the LTC market. There are alternatives to traditional health based, annual pay, LTCI. Life insurance-based LTC policies, annuity-based LTC policies and single-premium LTC policies with return-of-premium provisions are available, and yet they go relatively unused and in far too many cases unnoticed.
It is more imperative than ever that LTCI salespeople take the time to investigate and learn how companies are using different chassis to support the various LTC products and their applications. Taking the time to investigate and understand all the different product types available is a necessity for the serious long term care professional.
If you intend to be a player in the new long term care insurance world, you need to be well-versed on all the different types of coverage available to meet the ever-changing financial realities being faced by clients and prospects. Otherwise, you’re going to be on the wrong side of an uneven playing field.