My current role gives me the opportunity to travel the nation and help financial professionals provide long-term care solutions to their clients. While they’re a very diverse group representing every sector of the financial services industry, I’ve found the most successful producers have one thing in common: When it comes to addressing LTC needs, they focus on planning, not product.
This point only grows more important as LTCI carriers continue to introduce new product features. While these innovations usually make the coverage more flexible and valuable to clients, they can also lead to confusion if advisors and agents dwell on the intricate policy provisions rather than emphasizing the broader risk being addressed.
Treat LTC risk like others you address
Every financial professional helps clients manage one or more type of risk. Depending on your specific niche, those risks might include:
- The loss of income due to the death of a bread-winner
- Market losses from a poorly-diversified investment portfolio
- The prospect of outliving one’s financial resources
- The erosion of a financial legacy due to federal estate taxes
- Exposure to property destruction or legal liability
No matter what the risk is, addressing it typically involves three basic steps:
- Identify it: Draw it to your client’s attention.
- Quantify it: Estimate the total financial exposure.
- Manage it: Recommend the best approach to facing the risk.
Addressing the risk associated with the potential need for LTC services is no different. To ensure your clients perceive you as a risk manager — and not as a peddler of a certain product — it’s critical that you start your LTC discussions by identifying and quantifying the risk your clients face.
First, enlighten your clients
Most clients — through personal experience with friends and relatives — have some appreciation for their potential need for LTC. They may not, however, fully understand the following:
- How likely the need is. It’s easy to get carried away with statistics, but this one is worth sharing: According to the U.S. Department of Health and Human Services, 70 out of 100 people reaching age 65 will need LTC services during their lives.
- How much it could cost. The average private room in a nursing home now costs more than $77,000 a year, according to Genworth’s 2011 Cost of Care Survey. Of course most clients would prefer care within their own home — and that comes with a cost as well.
Rather than racing to a recommended solution, it’s important to initially focus on discovering and discussing this risk exposure with your clients, helping them realize how it could undermine not just their own financial security, but also the legacy they hope to leave to others. Once you’ve done that, you’re sitting on the same side of the table as your client, working together to find the best solution.
Then, help them choose the best approach
In managing any risk, there are four strategies to consider. To help your clients to the right conclusion, take a moment to explore each of them together:
1. Avoidance. Unfortunately, since we can’t avoid the aging process — or eliminate other conditions that could lead to LTC needs — this isn’t really an option.
2. Reduction. A healthy lifestyle may lower your clients’ risk today, but — by extending their life expectancy — it could actually increase the chances they’ll eventually need LTC.
3. Retention. This strategy focuses on paying LTC costs out of the clients’ own assets. While retaining the entire risk may be a viable option for certain high-net-worth clients, they should also weigh the potential impact on their heirs.
4. Transfer. Just as clients do with life, home, auto and liability insurance, this entails transferring the risk to an insurance company in exchange for the payment of a premium.
When the LTC topic is approached within this objective risk management framework, it’s only natural for most clients to see that their best interests are served by some combination of transfer via insurance and retention with a carefully chosen policy elimination period.
With LTC coverage growing ever more robust and offering a greater number of options, you don’t have to be a LTC policy expert to serve your clients well. As a financial professional, you can simply identify the risk, help your clients choose the best strategy and partner with a specialist to implement it.
Steve Cain is executive vice president and sales leader at LTCI Partners, a brokerage general agency specializing in long-term care insurance. He can be reached at email@example.com.