Agents selling long-term care insurance (LTCI) of course need to know the general cost of long-term care. However, in order to educate clients with information targeting their specific needs and to help them select appropriate benefit amounts, agents must also have a sense of how much is charged on average for home health care, assisted living or for care in a nursing home.
Knowing details about the costs of long-term care can help agents design more inexpensive products and this in turn can enhance the sales process. And when purchasers understand that higher benefit amounts mean higher premiums, they naturally ask, “How much do I really need?” Agents need to be prepared with the right facts and financial data to effectively answer this question.
The issue is whether producers really need a detailed annual study of care costs, such as those produced by LTCG and Genworth Financial. These reports are just for LTC industry professionals designing products, setting prices, and planning for the future, right?
Wrong! These studies can be very useful for agents looking to advise consumers and help them make informed decisions. There are several ways producers can use the data in these reports to better meet clients’ needs, leading to increased sales and greater customer satisfaction.
1. Choosing the daily benefit amount
Most agents have a general idea of how much nursing homes cost per day and how much home health aides charge per hour. But this information is not sufficient for LTCI policyholders to make informed decisions. To select the right daily benefit amount, they need to know:
- Local costs, not just a statewide or national average. They should also consider costs in other places where they might receive care since policyholders may plan to retire to a warmer climate, or might need or want to move closer to family members.
- Costs within a variety of services and settings. Consumers’ needs and preferences vary, affecting the amount of benefits required. Some people with a lot of family support may feel that they won’t need as many hours of paid home care services. Others who can’t or don’t choose to rely on family care may expect to use a lot of paid home care. Some individuals may already be planning to move to an assisted living residence at some point, while others want to stay home until they have no option but to seek care in a nursing home.
- Highs and lows as well as average costs. Some people insist on the best service providers and accommodations in the area; others are willing to use less expensive providers. Consumers may know through word of mouth which providers they prefer. Finding out what specific providers actually charge (relative to the average cost) may help tailor coverage specifically to expected costs of care for an individual.
It’s also important to keep in mind that some purchasers want insurance to cover all (or almost all) costs, while others expect the insurance to pay for most but not all of their care. Whether people are fully insuring or partially self-funding, they need accurate information on costs in order to plan ahead.
This detailed information — by locality and types of care, and ranges as well as averages — is available only from these in-depth cost studies. Consequently, they are a valuable (indeed essential) resource for agents and their clients.
2. Right-sizing home care benefits
Most people want to be cared for in their own homes as long as they can, so it is important for them to have sufficient benefits to cover paid services – this way they can avoid burdening a spouse or adult children who are trying pursue careers and raise their own families. But many people over-insure for home care, choosing higher home care benefits than they really need, and therefore pay a higher premium than they should.
This can be avoided when an agent draws from in-depth cost studies. Cost of care data, combined with information on how people use in-home care, can help inform the right benefit amount for home care. Information on the intensity of service use is important because many buyers of LTCI don’t realize that most people don’t receive home care every day (much less 24 hours a day, seven days a week), and that benefits need not cover such extensive care.
If clients have greater knowledge of how much services cost where they live and a better understanding of how much care they are likely to use, they won’t, without realizing it, choose a higher benefit than they really need and pay a higher premium than they really have to. While most people today buy a home care benefit roughly equal to their nursing home amount, in reality people typically spend less when they are receiving home care compared to facility-based care costs.
3. Inflation protection
Few consumers have an accurate picture of the rise of long-term care costs. Many assume that LTC prices are increasing at about the same rate as health care costs, when in fact they have gone up much more slowly. In-depth cost studies can give agents and their clients the information they need about long-term trends to make an informed decision about an inflation protection option.
Buyers who expect to need care in the fairly distant future should make sure they have adequate protection against rising costs. But on the other hand, some people may not require maximum protection: a simple rate rather than a compound rate of increase may be sufficient, or a 3 percent rate instead of 5 percent. By purchasing enough – but not too much – inflation protection, people can meet their needs while keeping their premiums down.
4. Retaining coverage
Industry-wide premium rate increases have been a focus of media attention and consumer concern. In recent years, on a class basis, insureds have been faced with premium increases on existing coverage. When this happens, insureds are given several options, some of which might include reducing benefits in order to avoid or limit the premium increase.
The question then arises: Can benefits be reduced while still maintaining adequate (if less generous) coverage? Or is the best choice to pay the new, higher premium? Or let the policy lapse?
In this situation, the agent can draw on studies to educate the insured about the exact costs of various services in the area. This could result in retaining reduced coverage instead of letting the policy lapse. It might also happen that, after initial reluctance, he or she chooses to pay the new, higher premium to continue current benefits.
A similar situation occurs not when a premium is raised, but when an individual’s circumstances change, making it more difficult to pay the premium. The insured may be able to request a decrease in coverage for a corresponding premium decrease, and an agent can help the policyholder do this in a way that maintains adequate coverage relative to costs of care.
Greater knowledge leads to increased sales and customer satisfaction
Comprehensive studies give producers access to detailed information on LTC costs (by service, setting, and locality), service utilization and trends, enabling them to help clients make the right choices. This results in clients with a benefit level appropriate for their needs and preferences, and at a premium that they can afford—leading to increased sales and more satisfied customers.
For more coverage on Long-Term Care Awareness Month, please go here.