Economic Behavior...
Senior Decision Making And Cognitive Impairment

Jack Marrion
May 2013 Issue

Many studies have found that a non-mentally impaired 75- or 85-year-old can make financial decisions that are just as good as a non-mentally impaired 25- or 35-year-old. Indeed, a 75-year-old often makes better decisions than a 25-year-old because if an older person has had to face a similar decision in the past, he uses that experience to guide him. However, an older person processes data in a different way than a  young one, and this must be taken into consideration. In addition, the odds of being mentally impaired dramatically ramp up once a person reaches the eighties.

Crystallized Versus Fluid Intelligence

To understand how aging affects the brain, think about how a computer works—it takes in data and then processes that data to reach a conclusion. The more data that is already stored on the hard drive, the less new information is needed. In the brain this stored data is referred to as crystallized intelligence. A 75-year-old typically has much more stored data than a 25-year-old, thus making a fresh decision doesn’t need to wait for all of the data to come in from the outside.

The computer also needs to process data using it central processing unit (CPU), but not all computers process data at the same speed. A Xeon or Core processor works much faster than the Intel 8086 processor that premiered in 1976. In the brain the CPU is known as fluid intelligence and the reality is that our fluid intelligence (processing speed) peaks around age 20 and steadily drops over our lifetime. However, because our crystallized intelligence grows at a faster rate than our fluid intelligence declines, we are able to make better decisions as we age.

There does come a point when our stored data cannot offset the loss of processing speed and the quality of our decisions gets worse. That doesn’t mean these decisions are necessarily bad, it simply means they aren’t as optimal as they once were. There are steps that can be taken to optimize senior decision-making.

Improving Senior Decisions

Give Them Time. If seniors are not pressured and not rushed, they tend to make decisions as well as anyone else. This is by far the most important element in making better decisions. Take breaks and don’t hurry.

Be Repetitious. Since there is so much data already stored on the brain’s hard drive, it may take repeated exposure to get new data to sink in. On key points, probe for understanding by asking what that key point means to them.

No Multitasking. Regardless of age, doing two or more tasks at the same time results in a worse performance than doing each task separately. However, the consequences of multitasking are much worse for seniors. What this means is a presentation should be done in an atmosphere free of distractions (no television or other background noise). Concepts and benefits need to be presented one at a time so that you have a client’s complete attention.

Give Enough Choices, But Not Too Many. When seniors were asked how many options they wanted to choose from, the average response was four choices when it came to picking a Medicare plan, five choices for a doctor or jar of jam, and six choices for an apartment or car. This does not mean a senior should be denied the availability of selecting from among 8,000 mutual funds or 600 annuities, it means that a financial professional needs to act as a data-sorter in order to make decisions manageable.

Connect Emotionally. If a presentation consists mainly of spreadsheets, charts and other cold facts, decision-making becomes more difficult. Seniors respond better and remember more information when it is emotionally charged. So, instead of saying this life policy provides a $10,000 death benefit, a senior will do a better job of processing if you mention that John and Mary bought a similar policy and, when John passed away, the life insurance paid for the funeral and Mary didn’t have to worry about covering the cost.

Dementia and Impairment

A non-mentally impaired senior can make financial decisions that are just as good as a non-mentally impaired “junior,” especially when data is presented in a manner that optimizes mental powers. The problem is that a senior is more likely to be impaired than a younger person.

The terms dementia, Alzheimer’s and mental or cognitive impairment are often thrown about as if they mean the same thing—but they don’t. Dementia, which includes Alzheimer’s, refers to the deterioration of mental faculties to a state in which fully rational decisions cannot be made. Cognitive impairment means the brain may still be able to make quality decisions, but there are impairments that may at times interfere with the process. A person with dementia is cognitively impaired, but a cognitively impaired person may not have dementia.

Under age 70, the odds of the client across from you having dementia or being cognitively impaired are relatively low. Even looking at clients in their seventies, the odds of their having any form of cognitive impairment are less than one in five. However, if you look at people in their eighties, the odds of impairment increase to one in two, and those with full-blown dementia increase to one in four.

During the course of an appointment it can be impossible to tell whether the person across from you might simply be having a “senior moment” (isolated forgetfulness) or is cognitively impaired. There are a variety of exams designed to test specifically for impairment, but that raises questions of the role and responsibility of an agent.

What if an agent sells a policy and, subsequently, it is discovered that the buyer was cognitively impaired? Every insurance carrier I spoke with said if it were brought to their attention that a buyer was impaired at the time of a purchase, the policy would be canceled and the premium refunded, if desired.

What happens if someone alleges that an agent knew a buyer was cognitively impaired and used the impairment to “financially exploit” that buyer by selling him a policy? In 37 states that buyer could sue that agent for civil damages, but it is not a crime.

However, 13 states have criminal sanctions against the financial exploitation of vulnerable adults (Alabama, California, Connecticut, Delaware, Georgia, Idaho, Kentucky, Louisiana, Mississippi, Nevada, South Carolina, South Dakota and Tennessee). In these states a financial professional could conceivably be convicted and sent to prison for financial exploitation if it is determined that a consumer was impaired at the time of a sale—even if no fraud had occurred (this list of states is accurate at this writing, but it is not warranted and should not be taken as legal advice).


Agents need to recognize that seniors’ decision-making is different from juniors’ and should take this into consideration regarding how to interact. Agents must also recognize that a 75-year-old can make a decision just as well as a 35-year-old if the presentation takes into account these differences.

The risk of a consumer being cognitively impaired dramatically increases once the eighties are reached. The two truths are that consumers in their eighties need financial products and that a significant percentage of those have impairment. Agents who wish to work with this market will need to establish their own guidelines and procedures on how to deal with this issue.

If you do sell a policy to a person with dementia and some regulator says you “financially exploited” that person, the odds are very, very slim that you’re going to be sentenced to prison (although it has happened—once). In 37 states this isn’t a criminal offense. In the remaining states the definition usually means actual theft of assets, and purchasing an insurance product does not appear to meet that definition.

Author's Bio
Jack Marrion
provides research and consulting services to insurance companies and financial firms in a variety of annuity areas. He also serves as director of research for the National Association for Fixed Annuities and as a research fellow for Webster University. In 1994 he wrote a book to help banks market investment and insurance solutions to their small business clients. In 1996 he produced the first independent hypothetical return monthly publication comparing all index annuities on the market, and in 1997 created the first comprehensive report of index annuity sales, products and trends, "Advantage Index Product Sales & Market Report" (quarterly). His insights on the annuity and retirement income world have appeared in hundreds of publications. In 2006 the National Association of Insurance Commissioners asked him to address their annual meeting and teach regulators the realities of index annuities. He was invited back in 2009 to talk to the NAIC about the effects of aging on senior decision-making. He is a frequent speaker at industry functions. Prior to forming Advantage Compendium, Marrion was president and owner of an NASD broker/dealer with offices in nine states. Previous to that he was vice president of a life insurance company and vice president of an NYSE investment banking firm. He has a BBA from the University of Iowa, an MBA from the University of Missouri, and a doctorate from Webster University. Marrion can be reached at Advantage Compendium, Telephone: 314-255-6531. Email: