Behavioral Finance and Long-Term Care Planning

As a long-term care planning specialist, I'm always seeking ways to improve my client conversations.

That's why I was intrigued when I heard about an approach based on using behavioral finance theories.

Many financial services professionals now use strategies based on the research when they are helping clients with retirement and 401(k) planning.

Behavioral Finance Basics

Behavioral finance examines the psychological and emotional factors that influence financial decision-making.

The researchers who work in that area combine psychology, economics and finance in an effort to understand how people make decisions about money.

The research definitely affects the insurance industry, because the decision to buy a policy is often influenced by a variety of behavioral biases.

The Users' Manual

Steve Cain, national sales leader at LTCI Partners, has digested academic studies, books and years of conversations with behavioral finance researchers into seven tips for advisors who are talking to clients about long-term care planning.

T1. Keep the choices as simple as possible.

Simplify and limit the choices. This is based on a concept called "choice architecture." Researchers found that, when people are presented with complex and infrequently offered benefits, they do nothing. We're conditioned to buy things in a "good-better-best" format.

2. Focus on the possible gain versus the potential loss.

We've seen through the industry's market penetration that fear and spewing statistics don't change behavior. They don't motivate people to take action.

Consider going the other route: Be positive. Focus on the gains vs. losses, or the potential cost of a long-term care event. Tell your prospect or client what they gain by planning with long-term care insurance. "If you secure long-term care insurance today…"

You are securing peace of mind.
You will be cared for on your terms.
You are locking in your health, your age and insurability.
You are gaining a tax-free funding strategy for care.
Today, the cost of care is $6,000 a month; and, when, you need it, the cost will likely have increased to $12,000 a month.
Today, you have a total of $250,000 of benefits. That could be worth over $500,000 when you need it.

3. Frame the conversation carefully.

Think about whether your client wants a conversation about caregiving or a conversation about asset protection.

Start with: "I'm sensitive to your time. What motivated you to have this conversation?"

Or:

"Before we get going, I'm curious. How did this come up? Was it because of a personal experience, or did your advisor tell you that you should look into this?"

4. Use stories, not statistics.

Statistics destroy empathy and create debate.

The trait powering a client's skeptical reaction to statistics is "confirmation bias": the search for information that reinforces our beliefs.

Just think about how people find and use information. If we need some information or statistics, just Google it or ask ChatGPT.

But, don't forget: Humans are storytellers, and we love hearing stories. Stories are what drive our action.

5. Use "heuristics," or rules of thumb.

We all want to know what other people like us are doing. It gives us comfort and reinforcement that this is the right things to do.

A heuristic is a rule-of-thumb, or a guide toward what behavior is appropriate for a certain situation. Heuristics are also known as "mental shortcuts." Mental shortcuts can aid us when we face time pressure to make decisions or when conditions are complex and our attention is divided.

6. Get your clients to say yes.

When you have client agreement, it's only a matter of time before you have the sale. You're trying to get your client to say "yes." What does that mean?

Yes, this is an important issue.
Yes, I understand the consequences to my family and finances if I don't plan for long-term care.
Yes, I understand insurance can help offset this risk.
Yes, I need to plan for long-term care.

7. Advance the conversation.

Focus on advancing the conversation about planning vs. closing the sale. "Closing" puts subconscious pressure on the client.

How many times have your clients said, "I need to think about it" after you've presented long-term care insurance solutions? Don't pressure them: We need to be sensitive to the buyer's journey and timing.

Here's a low-key way that you can advance the conversation:

Client: "I need to think about it."

Advisor: "You should. But it sounds like you understand that this is an important issue, and you see the value of planning ahead. Let's figure out when we can come back together and determine a strategy that works best for you. It could be self-funding? Or family caregivers? Or is it the Insurance that we discussed?

Margie Barrie, an agent with ACSIA Partners, has been writing the LTCI Insider column since 2000. She is the author of two books and a frequent conference speaker.