When Kevin Crowe looked at the demographics of people who buy fixed annuities and those who buy long-term-care policies, he noticed they were nearly identical.
The average buyer is in their fifties, is middle or upper-middle class, and is obviously interested in both products, said Mr. Crowe, chairman and chief executive officer of Essex Corp., a third-party marketer in New York. I wondered: Why cant we combine the two? So thats what we did.
The result was the ClassicCare Annuity, a fixed annuity with a nursing home rider, which Essex designed and launched last month. The annuity, underwritten by AIG Life Insurance Co., a subsidiary of American International Group of New York, is now selling through banks in 36 states, including ABN Amro, LaSalle Bank, Michigan National Bank, Standard Federal Bank, and First American Bank.
Carmen Effron, president of the consulting firm C.F. Effron Co. in Westport, Conn., said this is the sort of product many banks want to sell. This is basically a fixed annuity with bells and whistles. Its not complicated.
The forms are simple to fill out, and there dont seem to be any hassles involved, she added.
The unique feature of ClassicCare is the nursing home care coverage, which has a five-year benefit deferral period before it kicks in. Mr. Crowe said the deferral period should not pose a problem, as no one signs up for nursing home care benefits as they are checking into a nursing home.
The rider covers a three-year nursing home stay and pays 4% of the annuitys value each month for that time. For example, if the annuity is worth $100,000, the nursing home rider would pay $4,000 a month.
The average nursing home visit is 2.2 years, Mr. Crowe said. After that, youre either gone or youre okay enough to leave. But if the annuity holder stays past the three years, [he or she] can dip into the annuity to pay off the remainder of the nursing home costs.
AIG doesnt have to underwrite the nursing home rider, because the cost of that part of the product is taken out by lowering the annuitys growth rate by half a percentage point, Mr. Crowe said. The same annuity without the rider has a growth rate of 6.5%, so we lower it to 6%, and the reduction in the interest rate pays for the benefit.
To open the ClassicCare annuity, an investor must deposit a minimum of $25,000. The product is primarily designed for middle class and upper-middle class customers who want to be able to choose their own nursing homes, Mr. Crowe said. The lower economic class is probably going to turn to a HMO nursing home.
While Ms. Effron said the annuity should be a hit for the middle class, she believes wealthier customers will probably shun it.
The upper-middle class and certainly the upper class will probably look for a product with lifetime long-term care benefits, not three years, Ms. Effron said. Theyre going to want to protect their assets, and thatll mean finding a product with a great degree of protection.
