5 ideas for selling long-term care insurance to Gen X

October 08, 2014 at 03:01 AM

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Generation X is commonly defined as including those of us born between the years 1965 to 1984, although the MetLife Mature Market Institute puts the bookend at 1976.

Since we are the generation who followed the enormous "Baby Boom", we are sometimes known by the ignoble name, the "Baby Bust". If you grab your calculator you'll find that the oldest of us are about to turn 50, while the youngest are yet in our 30.

From a demographic standpoint, it's easy to remember our numbers: there are about 50 million of us and we're equally composed of males and females (50/50). By the year 2030 we'll be right in the wheelhouse for long-term care insurance sales, hitting the age band 54 through 65, at which point we'll comprise 13 percent of the American population. Geographically speaking, we make up 13 to 18 percent of every state in the nation.

I'm not only the president, I'm also a client

Hailing from this era, I can speak with some credibility. The label "Gen-X" was a testament to our ineffable lack of identity. No one could pin us down, but we were okay with that. We were more ethnically diverse than generations before us (60 percent non-Hispanic White, 19 percent Hispanic, 12 percent non-Hispanic Black alone, 8 percent non-Hispanic Asian alone, 2 percent all other races). This diversity translated into increasing tolerance and acceptance, according to Dr. Rick Hicks and Kathy Hicks and their book Boomers, Xers and Other Strangers: Understanding the Generation Differences that Divide Us.

This general sense of amorphism and uncertainty pervaded other aspects of the Gen-X demographic. Divorce rates continued to increase, more of our mothers worked outside the home, and more worksites were either "downsizing" (there's a term that previously didn't exist) or laying off their employees. Sociologists believe Gen-X countered these trends by placing increased emphasis on personal life and family, and less on work or finances. Furthermore, family became whatever we defined it to be. (About two-thirds of us are married, about 10 percent divorced, and 15 to 20 percent never married.)

Our savvy generation was the first to develop democratizing technologies, including Google, Amazon and YouTube. Yet our approach to the workplace was in stark contrast to those who came before us: we were neither wedded to our employers, nor determined to die at work. One side effect of the Baby Boomers' tendency to delay retirement has been to nudge their Gen-X co-workers into more ambitious plans for promotion.

Among the fields where we tend to find most Gen-Xers are "management" and "professional", followed by "service", then sales and office positions (although, in all fairness, there's a huge demand for these kinds of positions across most of the country). These categories account for 90 percent of women and two-thirds of men. Our generation is generally well-schooled, consisting of about 90 percent high-school graduates or having attended some college, with one-third having an undergraduate-level degree or greater.

When the oldest among us was born in 1965, life expectancy at birth was 70.2 years. By the end of the generation in 1976, our life expectancy had risen to 72.9 years. Perhaps owing to our relatively white-collar and non-disabling occupations, longevity among our cohort has risen yet again. By 2006, a Gen-X male could expect to live to approximately age 78, while a female could look forward to attaining age 82.

Getting to know Gen X: "Sixteen Candles" plus a few dozen more

Names of famous Gen-Xers serve as both cultural milestones and as imaginary prospects. Could you envision yourself sitting across the table from the following individuals and pitching long-term care insurance? (Let's leave aside the fact that they are assuredly mega-wealthy.)

Adam Sandler
Molly Ringwald
Tony Hawk
Will Smith
Ken Griffey, Jr.
Matt Damon
Lance Armstrong
Carson Daly
Alanis Morissette
Tiger Woods
Reese Witherspoon

Getting to know Gen X: their backstory

When you're in sales, it's important to know what shapes an individual. What's his or her backstory? In the case of those born between the years 1965 and1984, we all share certain national historic events in common. These occurred during our formative years and served as the crucible in which our identities were formed for later life.

Without naming everything that occurred, allow me to list a few major events that should ring familiar:

Occupation of the U.S. Embassy in Iran and the ensuing 444 day hostage crisis
Time magazine named its "man" of the year: the computer
Martin Luther King, Jr. Day became law in the United States
MTV debuted
Mobile phones and the Sony Walkman debuted
Sally Ride became the first American woman in space as well as the youngest American in space
Three Mile Island nuclear power plant accident in Pennsylvania
AIDS identified
CNN launched
Apple Mac goes on sale
Highjacking of the cruise ship Achille Lauro
Explosion and loss of the crew of the space shuttle Challenger
Destruction of Pan Am flight 103 terrorist bomb over Lockerbie, Scotland
Fall of the Berlin Wall

Getting to know Gen X: pragmatists when it comes to financial decision-making

As a whole, Gen-Xers have been described as "independent", "resilient", "adaptable", "cautious" and "skeptical". This is a resourceful group, and one of their most important financial goals is home ownership. Thankfully, the majority already do own their homes (among 40 to 44 year olds – nearly 84 percent of married couples, as well as 47 percent of males living alone, and 50 percent of females living alone, own their homes).

Gen-X's poverty rate is below the national average. In fact, both mean and median incomes suggest this may be a cohort who could benefit from researching long-term care insurance. Among ages 40 to 44, the mean income of married couple families was about $105,000, while the median income was just over $84,000 (figures from 2008). Because Gen-Xers have no desire to forfeit their standard of living, they are pragmatists when it comes to financial decision-making. They acknowledge the need to take rational steps to save or invest as well as being willing to educate themselves or employ the services of a trusted professional.

Getting to know Gen X: Don't do today what you can put off until tomorrow

Knowing what we know, how do we "crack the code" and sell long-term care insurance to this generation — those Americans roughly between the ages of 30 and 50? First, it's no easy task for any number of reasons.

When I started keeping detailed statistics on behalf of my agency (LTCA), the age of our average buyer was 71. Reflecting a widely-known trend, our buyer's average age today is now 59, right in line with the industry (although a little on the high side). Although we are dealing with average, the attentive reader will still note that 59 is still a decade older than the subject of this article. However, the total number of all Gen-X applicants last year (aged 30 through 50) comprised less than 10 percent of our total.

The numbers back up an observation we've previously made as marketers: as a rule-of-thumb, prospects between the ages of 40 to 54 demonstrate an eagerness to learn about long-term care insurance and will request information and return cards all day long. But they are rarely "buyers." It's not until the ages of 55 to 64 that individuals reach that part of the "nurturing" process where they are ready to buy.

Don't believe me? One of our carrier partners conducted research about the long-term care insurance buying process and found a lag time from awareness to purchase that can last as long as seven years, according to the Genworth LTCI Purchaser Study Summary of 2013. This precisely describes the ground we are covering today:

The average age at which one becomes aware of the need for LTC is 44
The average age at which one becomes aware of the existence of LTC insurance is 46
The average age at which one engages in learning about LTC insurance is 50
The average age at which one actually purchases LTC insurance is 53

One of my respected colleagues wrote a white paper recently wherein he describes working with a body of clients who consider themselves "too young for long-term care insurance" – later using a 50-year-old as an example. According to research published by the College for Financial Planning, the top four financial planning issues of clients are:

Health care costs
Funding retirement
The burden of taxes
Investment growth.

Ranking second to last is funding long-term care. Yet, as my colleague correctly articulates — no financial planner worth his or her salt can rightly separate retirement planning from long-term care planning. So what we have is a knowledge gap.

One can't necessarily blame the public. After all, we only know what we're told. And what we've been told for the last decade — relentlessly so — by the popular financial media is when to buy:

"Wait until you are near 60"
"Mid 50's"
"For many people younger than 50, long-term care insurance seems like something to defer…they don't have the fear of reality until they're over 55."

But is this advice the chicken or the egg? Are advisors merely reporting who is coming into their office and buying, or is this the consensus recommendation?

After all, if we believe that the best time to apply for long-term care insurance is when you are young and healthy, then why wait until you are in your late 50s? Why is the average age still 59? Shouldn't we be spreading the word to Gen-X that no one is either too young or too healthy to start looking at long-term care insurance? Why not a 40-year old or 30-year old?

Getting to know Gen X: They're pushing the envelope

From a carrier standpoint, there comes a point of diminishing returns – risks versus rewards, if you will. Back in the salad days, it was normal to underwrite between the ages of 18 through 89. As the ceiling started to cave in, the older ages fell to 84…then 79… and now as low as 75 with some companies. But while some might have seen that coming, something even more interesting was what happened on the younger end: the bottom rose to meet it, with the minimum age often set at 40.

This was a response we've grown accustomed to in long-term care: even though a minority of sales may come from a certain group, the risk associated was too high. And when it came to 20-somethings and 30-somethings, the kinds of claims they are prone to are the most catastrophic of all. Imagine a healthy and athletic kid diving into a pool and paralyzing himself from the neck down (or suffering the same fate from hang gliding, motocross, etc.). Or consider the type of diseases like which tend to manifest during these years, such as Lupus or multiple sclerosis. Now imagine paying these claims not just for the last few years of someone's life, but for the next 40 years.

So even as the carriers are working to mitigate risk by narrowing the age band which they will accept, is there any reason why I, as an advisor, would not recommend a Gen-Xer look at long-term care insurance for himself or herself? Are ages 30 through 50 too young? Why is everyone else recommending waiting until ages 55 through 60? Here are possible reasons why someone might wait:

Budget: Competing financial priorities
Postponement: Currently uninsurable but hoping to be insurable in the future
Future expectations: Expecting or hoping to be married in the future and waiting for the benefit of a couples' discount. (Some carriers let you buy today, then add this later; but you're playing with fire since there's no guarantee they will uphold this promise. When they change policy forms, they sometimes change their procedures as well, and then new rules take precedent.)
Flexibility: Concerned about possible inflexibility of policy with a purchase this far in advance

Addressing this last point, policies as far back as even a decade ago began including increasingly broad "Alternate Plan of Care" language in an attempt to mitigate concerns over policy obsolescence. Brochures used examples of robotics and telemedicine and promised to consider future technologies even if they weren't explicitly named by the contract. Today's policies include even more options for the policyholder to upgrade his or her contract in the future rather than risk replacement.

For what it's worth, younger consumers might have also added to this list concerns over paying for coverage so far in advance or the risk of the company's solvency so far in the future. But since this is an article for fellow producers — and not the lay public — we needn't retread LTC 101 here.

From a financial planning standpoint, this would be a great national goal for Long-Term Care Awareness Month, by the way: let's see to it that Gen-X gets it into their collective psyche that buying LTC insurance is just something you do in your 50s. It needs to become an inculcated, expected part of growing up and becoming an adult. You buy life insurance in your thirties; disability income insurance in your forties, long-term care insurance in your 50s, and Medicare Supplement comes at age 65. (Your mileage may vary.)

Having drawn a circle around Generation X and colored it in with facts and figures, let's now turn our attention to the ways in which we might penetrate this reluctant market and demonstrate the value of long-term care insurance.

Sales idea 1: Worksite sales

While we've previously remarked how Gen-X displays less loyalty to their employers than the Baby Boom generation, this doesn't diminish the fact that the most successful way to reach this niche market has been through the worksite. In other words, while applicants between ages 30 and 50 may represent a very small slice of overall long-term care insurance sales, they represent a very large proportion of worksite sales.

Other research supports this. When asked to provide reasons for purchase, the typical individual purchaser will list "classic" reasons such as asset protection or the desire not to be a burden on his family. On the other hand, younger buyers (those in their forties) will answer simply, "Because it was offered through my employer."

Any number of reasons may explain why this is true. For instance, until the issue has been presented to them – perhaps through a lunchtime seminar at work – many individuals in their 30s and 40s may have had little firsthand experience with caregiving. Once educated, younger individuals may still fail to see the urgency without motivation by a closing enrollment window and a multi-life discount (an underwriting concession may or may not be of benefit.) The mobile Gen-Xer will value the portable nature of affinity, group or multi-life long-term care insurance.

We have other indirect proof that the Gen-X market can be tapped through the worksite. When asked, "What caused you to engage in learning about long-term care?" buyers under the age of 55 were more likely to cite a seminar or class environment than their older peers. While not definitive, this answer suggests they were marketed to at work. (Individual policyholders were more than twice as likely to have consulted an insurance agent for advice than group policyholders.)

Sales idea 2: Asset-based

Combination products (a/k/a "linked-benefit" or "hybrid") are most commonly sold to older, male applicants (average age being 67). The rationale goes something like this: "I've become too old for traditional long-term care insurance — it's passed me by, and now it's too expensive. Besides, the odds are my wife is who really needs a policy. I'll probably never need it!" But when we remember that asset-based products are not just about conserving a "use it or lose it" sale, but are about which chassis is most important to your client, it opens up the Gen-X market.

Your clients aged 30 through 50 may still be paying off a mortgage or raising children, and if so they do have life insurance needs. Should the insured die, his beneficiary receives a death benefit. Should he require long-term care, his claim is covered. And should he wish to surrender his policy, subject to policy limitations, he is entitled to his money back.

Given the long time horizon a younger policyholder would be expected to pay premiums on an equivalent long-term care insurance policy, one of the comparably beneficial aspects of an asset-based product are the guaranteed premiums. That is, he can be assured rates will never increase. (One might also forego a linked product entirely and simply purchase a life insurance contract with a rider that accelerates the benefits for chronic illness. The point remains the same.)

Sales idea 3: Immediate benefits

The longer the timespan between purchase and claim the more important it becomes to front-load the benefits. No one likes delayed gratification! To appeal to Gen-X it's important to emphasize those features which can be utilized not only today, but those which have value in the near years.

In the first category we can include immediate benefits, a broad category which I've written about before. These can include brain fitness programs, discounts and independent quality reports on providers, care advocacy and ombudsman services, and placement services. Since these benefits can often be extended not just to the insured's immediate family — but to her uninsured relatives — such value-adds can be of great assistance to a Gen-Xer's parents, in-laws, and even grandparents.

In other variations on a theme, another carrier offers discounts on homecare products (from incontinence aids to adaptive clothing), while still another has engaged the services of The Mayo Clinic in a mutually-beneficial effort to boost the health of its policyholders. Those who sign up for the voluntary service gain access to health trackers, calculators, a nurse helpline, personal health coaching (e.g., to quit smoking or to lose weight for those who qualify), symptom and prescription checkers, and access to patient guides about common medical procedures. Considering the proliferation and popularity of health "apps" (a nearly 400 million dollar market) this represents a vital opportunity to reach not just Gen-X, but Millennials as well.

In the second category we include "Double Accident before Age 65", "Return of Premium before Age 65", "Paid up to Age 65" and the like. Some argue that these benefits are token or "throw away", unlikely to be used. On the other hand, part of their relative scarcity is surely the result of our industry's book of business. When most purchasers are concentrated around 59, it would be highly unlikely to pay a return-of-premium within the next six years. But such a feature would be relatively more attractive to a buyer of age 40. And so on.

Sales idea 4: Diversity marketing

It is by now commonly known that — as we look to younger and younger generations — Americans who marry tend to wait longer to tie the knot, tend to wait longer to have children, and tend to have fewer of them. This is not breaking news, but without a national strategy in place, we can see decades in advance how today's decisions will create burdens and strains on our long-term care service and delivery system.

Those who decry the lack of private insurance penetration take note: as many as four out of ten Gen-Xers are non-Caucasian (the survey did not report how many Gen-X couples are interracial). In thirty years, the "white majority" in the United States will be gone. Of course market penetration has remained nine percent — we have a blind spot for half of the Americans who might be clamoring for our products.

The most successful producers, FMO's and carriers will be those who are best prepared.

This could include everything from fluency in Spanish or Mandarin Chinese to bilingual brochures, websites, social media ("Latino investors use YouTube and Twitter more than any other American investors") or Google Ads, to entirely new approaches to the African-American or LGBT communities to ensure such communities are treated with sensitivity, authenticity and understanding.

Sales idea 5: Inflation

The conventional wisdom is that the longer time one's policy has to grow, the greater the inflation protection you should purchase. According to the Deficit Reduction Act rule makers, if you are aged 76 or older, you may consider disposing of it altogether.

Meanwhile, when we look at costs over the past few years, the greatest increases have occurred at the youngest ages and for 5 percent compounded inflation protection. This suggests to us another piece of conventional wisdom: just lock in the coverage while you're healthy, and buy more later when your circumstances permit. Here's a curious fact: due to the cost of inflation protection, the rider can actually make a thirty-year old's premium more expensive than a forty-year old's premium — wow! But this doesn't mean a younger person can save money by waiting — that's a risky strategy.

There are pros and cons to any Guaranteed Purchase Option strategy, and one could argue that there's an age at which we reach a point of diminishing returns. I've never been a big fan of using guaranteed purchase options the way they are presented in the illustration software — rather, I think they are best used as a means of over purchasing the monthly benefit from "day one", as I describe here. But even I have to admit that a 30-year old who will be paying premiums for potentially another 60 years is far better off with some kind of compounding.

Arguably, the best kind of compounding is one that never grows too high nor too low, nor that you overpay for. That's why compounding tied to the Consumer Price Index (with the option to make GPO corrections) is among the industry's most foolproof.

Failing that, the Gen-X personality ("independent", "adaptable", "skeptical") would rather exert his or her own control over coverage than cede it to the insurance company, which is why "Step-Rated" makes a lot of sense in this context. It's compound growth which can be paused or re-started at the discretion of the policyholder. Given the length of time we're dealing with and the vagaries of life, a Gen-Xer might appreciate this flexibility.

One can't leave this discussion without giving a nod to other great inflation inventions of the past few years which might also appeal to the thirty to fifty year old client. A "tailored" inflation rider, which grows at 5 percent compounded through age 61, then 3 percent compounded through age 75 (or in the case of a "combination" inflation rider, switches to 5 percent simple from ages sixty-one to seventy-five), then stops growing — is modeled after the DRA Partnership age bands. On the one hand, these approaches offer good compromise against the exorbitant cost of 5 percent lifetime compounded while still providing certainty to the policyholder (i.e., you know in advance the growth you'll receive), something insurance is supposed to provide, which not all other options can deliver.

And one carrier offers the ability to "lock in" a lower inflation rate commensurate with today's relatively modest rates of growth seen in the home care industry. Such rates (which can range from 1 percent to 5 percent inclusive) offer the ability to vary one's premium widely. Through the age of 75 (or the lesser of twenty years), our Gen-Xer can bump-up her inflation as high as 5 percent compounded without evidence of insurability.

Like previous examples, this is yet another way to get the client to test drive the car and do what it takes to drive off the lot ("What's it gonna take to get you in this new Prius!") Not that's there's anything wrong with that. It actually puts the policyholder in the driver's seat (yup, I went there). With a guaranteed renewable policy, once someone's "on the books", the insurer's on the hook for life. Remarkably, few consumers grasp the import of this equation.

Hopefully, with some of the insight provided above, you will be adding more Generation-X clients to your book of business not just next year, but in the decades to come. Good selling.

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