Long Term Care Insurance conversation for the Wealthy

In conversations and presentations to clients the word “average” probably slides off your tongue without you giving it much thought. You use the DJIA, the historical average rate of return for stocks, and other financial data averages to give authority and credibility to your opinions and explanations. Sometimes, however, using “average” may create a false impression and kill your opportunity for a sale.

For instance how do you handle the long-term care issue with your moderately wealthy, older clients? Perhaps your meeting goes like this average planner’s:
Average planner: This is something most people don’t like to talk about, but have you two given any thought to what would happen if either of you needed long-term care?

Wife: Well, yes. My mother was in a nursing home and it cost…
Husband: Hey. If you’re trying to sell us one of those insurance policies, forget it. We can afford to pay for anything like that ourselves.
Average planner: Yeah, I guess you’re right. The average cost is $50,000 to $60,000 per year. So based on your net worth and investment income it wouldn’t be a big deal to come up with that.

Our average planner was right. Nursing home services do average $56,000 per year. While you may be relatively confident with this number did our average planner make the mistake of assuming that this was best for the clients? I am not suggesting that this number should be ignored. But by using it strictly as a benchmark you may be able to discover that some of your wealthier clients have expectations that can only be met with LTCI.

First of all, what type of care will $56,000 a year buy? Generally, it’ll be in an institutional surrounding, with a semi-private room and one bath that may also be shared with patients from an adjacent room. And as far as the amount of care that might be expected goes, the government put together the following study :
Number of Nursing Staff Hours Per Resident Per Day

Number of Residents RN Hours per Resident per Day* LPN/LVN Hours per Resident per Day* CNA Hours per Resident per Day* Total Number of Nursing Staff Hours per Resident per Day*
Average in the United States 82.3 0.9 0.8 2.3 4
*Hours per resident per day is the average daily work (in hours) given by the entire group of nurses or nursing assistants divided by total number of residents. The amount of care given to each resident varies.

Would your affluent clients want a higher level of service? Maybe a private room, private bath, special meals, and 24 hours per day of nursing assistance would be more to their liking. But the extras come with a price. A private room can average an additional $25 per day. LPNs average $37 per hour and Home Health Aids $18 per hour . Therefore, if you upgrade the room and increase the nursing services by 10 hours each for the LPN and HHA to make up for what the nursing home normally doesn’t supply, you could bump the $56,000 average up to $265,875 per year.

You can massage the numbers all you want. But nevertheless, when you consider that the average stay is 2½ years, the totals can get impressive to those clients in the $1million to $5 million net worth range. And if you’re talking to a married couple, you can open their eyes to the potential problem of using the “average.”

Now let’s see how a creative advisor might use the averages to bring this dilemma to the clients’ attention and possibly make a sale. We’ll start off after the husband’s interruption.

Creative advisor: I can understand why you may feel that way. The average cost is $50,000 to $60,000 per year. So based on your net worth and investment income it wouldn’t be a big deal to come up with that. But are you average?
Husband: What do you mean?
Creative advisor: You two seem to like the better things in life.
Husband: Hey, I’ve earned every dollar we’ve got and deserve the best.
Creative advisor: Exactly. So wouldn’t you also like to have the very best health care in the most comfortable surroundings?
Wife: Of course. I remember the place my mother went. I wish we could’ve helped her move to something better back then, but…
Husband: Okay. What are you leading up to?
Creative advisor: What I’m saying is that if you would want the high-end care it’s going to cost more than the “average.”
Husband: Like how much more?
Creative advisor: Maybe an extra $200,000. It could be higher yet if you want to stay in your home.
Husband: Well, I’d sure rather be at home. But you’re telling me that if I needed care for three years, it could cost $750,000? That’s almost a quarter of our net worth!
Creative advisor: And more if you needed care for a longer time, or if both of you needed it.
Wife: That sure would change our plans on how much we could leave for our grandchildren and charities. What do you suggest?
From here, the creative advisor would discuss how this couple’s excess investment income could pay the premiums on LTCI policies that would possibly allow them to receive above-average care without depleting their estate.
Before your wealthy clients make the hasty decision (or you do it for them) that they can afford to self-insure against long-term care costs, discuss how LTCI may help bridge the gap between the “average” and their need for the best. You’ll give them peace of mind and maybe come away with a nice sale.