Ten years ago, we were selling Cadillac long term care policies – daily benefits that covered the full cost of care, 5 percent compound inflation protection, and lifetime benefit periods. We could do that because policies were reasonably priced. But since then, premiums have increased considerably, resulting in the No. 1 client objection to buying an LTCI policy: "It's too expensive." While financial professionals would likely agree that LTCI remains a prudent strategy even at today's higher-than-historic premiums, that raw dollar amount remains a stumbling block for many clients.
Yet we continue to show our clients loaded-up plans. When we do this, all we do is create "sticker shock" and reinforce what our clients already believe – that the product is too expensive. At this point, you've probably already lost them.
Paradigm shift #1: Protect even a little.
One of the first paradigm shifts you may need to make is, "Some protection is better than none." Most of your clients will have some level of assets that would allow them to self-insure some long term care costs. Whatever affordable plan you develop for them, that pool of money you've created represents direct asset protection. Stress that even a small amount of coverage provides a degree of protection for their family, in that the family may not be forced to be at such a high risk of becoming primary caregivers, and can be ensured that they will have a support system to help take care of you if and when care is needed.
Paradigm shift #2: Show smaller plans.
A second paradigm shift you may need to make is, "It's OK to show a plan with minimum benefits and buildup." This is important because you want to show them an initial, affordable plan that can dispel their major objection that "it's too expensive." Then, you can work to build up the plan with their affordability criteria.
Let's look at a typical quoting scenario: You have a 55 year-old couple interested in learning about LTCI. You look up the cost of care in the client's area, and find that the average daily cost is $250. You quote a benefit period factor of three years, a 30-day elimination period (because you like shorter elimination periods), and 5 percent compound inflation (because that's what's been engrained in you to do). The combined annual premium is $5,457. Do you think that might create sticker shock?
Here's a suggestion: Start low and build up. Quote $150 a day benefits, the three-year benefit period factor, something less than the 5 percent compound inflation protection (perhaps GPO or 3 percent compound inflation), and a 90-day elimination period – and consider quoting a monthly premium. The combined monthly premium in this case, using 3 percent compound inflation protection: $172. How about that sticker shock now? Then consider that, in 25 years – about the average age at which they may need care – they will each have a pool of $344,000, or a total of $688,000.
Which of the following scenarios do you think has a better chance of keeping the conversation going:
- "Mr. and Mrs. Smith, your annual premium for a $250 daily benefit is $5,457."
- "Mr. and Mrs. Smith, for $172 a month, you can purchase $688,000 of insurance."
Paradigm shift #3: Pay attention to trends.
A third paradigm shift you may need to make is this: "Offer them what people are buying – not what you want to sell them." The fact of the matter is that, generally, people do not buy the Cadillac plan. As reported in the American Association for Long-Term Care Insurance's 2010 Sourcebook, this is what people are buying:
- Issue age: 77 percent between the ages of 45 and 64
- Daily benefit amount: 72 percent between $50 and $199; 28 percent at $200 or more
- Benefit period: 76 percent between two and five years; 24 percent at six or more years
- Elimination period: 83 percent from 90-100 days; 7 percent from 20-30 days
- Inflation factor: 40 percent at 5 percent compound; 60 percent at less than 5 percent compound
- Average annual premium: Ages 45-64: $1,760; ages 55-64: $2,120; ages 65-74: $2,875
When coupled with the "start low and build up" strategy, knowing and following the trends may help you make more LTCI sales. Or, considered another way, it may help you make some sales you are otherwise losing. More importantly, you'll be providing your clients some level of protection they might not otherwise have.
A few suggestions, or things to think about, when building up:
Elimination period
