You meet with a client to discuss long-term care insurance (LTCi) solutions. They listen attentively as you lay out the strong statistical rationale in favor of LTCi and the many options they can choose from, believing the decision would become clear to them and coverage would be purchased. But they say they’ll have to think about it or the timing just isn’t right.
Sound familiar? The reality is that despite our best efforts and compelling factual arguments in favor of LTCi, adoption rates have consistently hovered around 8 percent, which corresponds with the percentage of the population that is predisposed to long-term planning by nature.
So why isn’t the traditional approach to planning for LTCi working for the other 92 percent? 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 “Nudge” (Richard Thaler), “Thinking Fast and Slow” (Daniel Kahneman) and others have explored the ramifications of this fascinating topic.
The research behind behavioral economics suggests that people really don’t act rationally as 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 a big increase in 401(k) participation. Another finding—that too many choices lead to inaction—has led to a narrowing of investment options. Similarly, “default” choices, such as target date funds, are now part of many 401(k) plans.
Here are six ways in which the findings of behavioral economics can help improve your closing rate when engaging in LTCi planning with clients:
- Don’t complicate the choices. As an advisor, 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.
- 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, such as how their retirement savings may be depleted. 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.
- Use stories instead of statistics! Statistics are important for discovering trends and insights, but they are awful when used for discussing LTC planning. People are way too optimistic about their future and think they will be on the winning side of a statistic. Focusing on stories and experience that prospects can relate to is a much better approach than using statistics that can destroy empathy when talking about planning for LTC.
- Focus on “now” benefits, not the future. It’s incredibly difficult for people to imagine aging and needing help. Instead, focus on the “now” benefits of LTCi. The now benefits are more difficult to quantify, but they can include peace of mind, good health underwriting and locking into a lower premium before a birthday.
- Help guideheuristics (rules of thumb). For analytical advisors, 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. 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.
- “Nudge” a choice. When people have to make a decision, such as actively signing off on the fact they have been offered LTCi but declined, they will be more likely to buy. LTC planning is easy to delay, and people need motivations to keep them from delaying the decision forever.
Behavioral economics is a controversial topic, but we think it offers food for thought about whether the way we have traditionally approached LTCi planning with prospective clients is the best approach. Employing some of its findings might move us beyond the 8 percent threshold of highly motivated long-term planners to help the remaining 92 percent of the population engage in meaningful consideration of their long-term care needs.
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