Updated on November 5, 2019, at 11:05 AM
You meet with a client to discuss long-term care (LTC) insurance solutions.
They listen as you lay out the strong rationale in favor of LTC insurance (LTCI) and the multiple options they can choose from. Believing the decision would become clear, you expect them to purchase coverage. But they say they’ll have to think about it or the timing just isn’t right.
The reality is that despite our best efforts and compelling factual arguments in favor of LTCI, adoption rates have consistently hovered around 8% which corresponds with the percentage of the population that is predisposed to long-term planning by nature.
The Problem with Traditional LTC Planning
So, why doesn’t the traditional approach for LTCI planning work for most clients? The answer, it turns out, might be revealed by some fascinating recent research into “behavioral economics,” which considers economic decision making from a psychological perspective. Best-selling books such as Richard Thaler and Cass Sunstein’s Nudge: Improving Decisions About Health, Wealth, and Happiness, and Daniel Kahneman’s Thinking, Fast and Slow have explored the ramifications of this fascinating topic.
The research behind behavioral economics suggests that people really don’t act rationally like classical economics assumes. Instead, people are motivated to act based on their emotions and impulses. Moreover, the choices we actually make are very dependent on how options are presented to us.
Organizations are beginning to use the findings of behavioral economics to try and “nudge” people to take actions. For example, more companies now auto-enroll employees in 401(k) plans and make them opt-out if they don’t want to join. The result has been an increase in 401(k) participation. Another finding? That too many choices lead to inaction, which conversely narrows clients’ investment options. Similarly, “default” choices, such as target date funds, are now part of many 401(k) plans.
Simply put, understanding and utilizing behavioral economics can lead to different client decisions. So, let’s dive into how you can use behavioral economic principles for more successful long-term care planning.
6 Ways to Improve Your LTCI Closing Rates
1. Don’t complicate the choices.
As a financial professional, you may think your job is to give a possible buyer multiple options for planning for care, such as spread-sheeting several insurance carriers or comparing standalone and linked products. However, the reality is that consumers don’t want this—they want a recommendation with just a few choices. Share your due diligence, but limit the information to what you consider the best options for them to consider.
2. Focus on the possible gain LTC will provide instead of the possible loss.
Research has shown that just like gamblers, we all want to win and we don’t like to think about losing. People who are considering LTCI don’t want to think about loss when planning for care. Instead, consider focusing on the fact that a small LTCI premium gives the policyholder the possibility of a big payoff in benefits. For example, a $2,000 annual premium could result in $300,000 to pay for high-quality care at home.
3. Use stories instead of statistics!
Statistics are important for discovering trends and insights, but they’re awful when used for discussing LTC planning. People are way too optimistic about their future and think they’ll be on the winning side of any statistic. Instead, focus on stories and experiences that prospects can relate to. Using statistics can destroy any empathy when talking about planning for LTC.
4. Focus on the present, not the future.
It’s incredibly difficult for people to imagine aging and needing help. Instead, focus on the “now” benefits of LTCI. These immediate benefits are more difficult to quantify, but they can include peace of mind, good health underwriting, and can lock clients into a lower premium before a birthday.
5. Don’t be afraid to use rules of thumb.
For analytical professionals, it’s tempting to use tools such as cost of care surveys that project the cost of care 40 years in the future when designing plans. But a better approach is to “follow the crowd” and recommend benefits similar to what other policyholders are actually buying. You may think people want customized solutions, but most would feel more comfortable picking options similar to other buyers. Recommend they do what most people are doing.
6. “Nudge” a choice.
When people have to make a decision, such as actively signing off on the fact they’ve been offered LTCI but declined, they’ll be more likely to buy. LTC planning is easy to delay, and people need motivations to keep them from delaying the decision forever.
The Bottom Line
Behavioral economics is a controversial topic, but it offers food for thought about the way we’ve traditionally approached LTCI planning with prospective clients is the best approach.
Employing some of its findings might move us beyond the small population of highly motivated long-term planners to help the majority of the population engage in meaningful consideration of their LTC needs.
Keep Reading: Is Self-Insuring Long-Term Care a Viable Option?
Disclosure: Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. FIG does not give tax or legal advice. Your client should consult with and rely on their own tax and legal advisors regarding their particular situation. This is not a comprehensive overview of all the relevant features and benefits of any particular product. Be sure to review all of the material details about any products referenced in this article before making specific recommendations to clients.