Like most important buying decisions, purchase of long term care insurance involves strong emotion.
Deciding to insure, selecting benefits, and making future co-pay and premium choices are among most important financial decisions the buyer makes.
Future LTC insurance benefits potentially represent an individual’s largest financial asset. For instance, claim payment to one of my clients now exceeds $400,000. This is greater than other assets, all of which were protected with LTC insurance.
Yet, major consumer and industry media still advise self-funding care by investing premium dollars instead of buying insurance.
Yes, the popular press is becoming more favorable to LTC insurance, and a growing number of professionals embrace it, too. However, the LTC insurance industry has not even scratched the surface in gaining broad acceptance among large segments of insurance, investment, tax and legal professionals–those who ought to be the industry’s most important allies.
A professional financial journal recently advised males to invest premium and not buy LTC insurance. This recommendation was circulated broadly, and it became the basis of a continuing education course for professional advisors.
Is it not amazing that even though a powerful association has advised 50% of the LTC industry’s potential market not to buy the industry’s product, there has been little or no response from the LTC insurance industry?
How many sales will be lost because an influential journal advised men not to buy LTC insurance? How much of the advice is grounded in fact? [Note: the author's conclusion was based on a sophisticated net present value (NPV) analysis, but it used faulty assumptions, somewhat like comparing apples to peanuts.]
To respond effectively, advisors and LTC insurance specialists need to have sufficient financial knowledge. They need this information so they can put to rest, intelligently and correctly, such unfortunately inaccurate information.
They need to be able to demonstrate that if comparable assumptions are used, NPV is not negative as asserted in the article. Instead, NPV is highly positive. This means LTC insurance beats investing premium in the markets by a wide margin.
They can provide a simple explanation of NPV such as this: Today’s profit is expected on a series of future cash flows. The cash flows, in the case of LTC insurance, include premium outflow and claim inflow. A discount rate or interest earnings assumption is used to measure the investment versus insurance.
Industry leaders ought to put a priority on converting financial professionals from influencing LTC insurance owners and advocates with passive or negative reference to LTC insurance, as in the above case. Emotion will not educate.
Faulty assumptions and avoidance of basic math need to be overcome and replaced with new, fact-based financial understanding.
How many LTC insurance prospects skipped coverage because the advisor could not effectively, quickly or accurately illustrate future cost of care or the LTC insurance solution?
How many advisors avoid offering LTC insurance because they do not understand the financial impact of care or LTC insurance value relative to other options, and are turned off by routine sales pitches?
Time has proven inadequate the argument, made by some influential industry leaders, that LTC insurance selling is all emotion. Whatever you do, they say, “avoid numbers.”
Those who do not like numbers and determine benefit recommendations from seat-of-pants premium-focused sales practices may be selling something, but they may also be leaving the client with unexpected and unaffordable co-payments at claim time.
By contrast, doing the numbers helps the client understand. It informs and maximizes client value for whatever coverage period the client can afford. Indeed, premium is often unexpectedly available when the customer fully understands future care costs and the value of comprehensive coverage.
The holistic financial story is powerful, easy to explain, and backed by auditable projections that are needed for disciplined financial analysis. When the numbers are effectively communicated upfront, it shortens the sales process and eliminates the problem of having other advisors convince the client that investing premium is a better deal than buying LTC insurance.
As astute observers note: In LTC insurance, the low-hanging fruit is gone.
New markets, tools, skills, and strategic referral sources will reach the rest of the tree. LTC insurance is a great value story if told with emotion enhanced by reasonable assumptions and accurate numbers.