Banks are still small players in the market for estate planning life insurance, but insurers say more are showing an interest.
Joe Donovan, the vice president of estate and insurance services for John Hancock Financial Services in Boston, summed up the experience of others in the business: "Banks have become a major focus."
For clients, estate planning is a complex part of financial planning. For banks and trust departments, selling insurance for these needs is a potentially lucrative source of fee income and a way to strengthen client loyalty.
Some insurers, through their wholesaling units, are training bank representatives, trust officers, and dedicated small-business officers on estate planning insurance. The topics range from recognizing a prospect to understanding how clients are affected by the complexities of a field that has only grown more confusing with Congress' decision this year to gradually raise the amount exempted from the estate tax until the tax is eliminated in 2010. But it would return to this year's level in 2011 and succeeding years unless Congress extends the repeal.
Mr. Donovan has stepped up Hancock's commitment to the insurance side of estate planning at banks. Since his arrival from the estate planning department of Manulife Financial Corp. in Boston a year ago, he has added 10 bank-dedicated wholesalers, all of whom are experts in estate planning life insurance.
The wholesalers work with the 22 life insurance wholesalers who are also dedicated to banks. "They'll come in on the sophisticated plans, which are usually estates in excess of $3 million," Mr. Donovan said.
"If you think about it, it makes perfect sense for banks to be big players in estate planning," Mr. Donovan said. "We run into a lot of very big cases through banks - they have the investment relationship with individuals with estate planning needs. But it's still a start-up channel. It's small, but it's growing."
BB&T Insurance Services Inc., a Raleigh, N.C., subsidiary of $68.9 billion-asset BB&T Corp. in Winston-Salem, N.C., has offered estate planning insurance for close to 20 years.
As is true across the industry, its most popular policy for this need is second-to-die, or survivorship, life insurance, which is generally sold to couples or individuals to pay taxes on an estate larger than the exemption amount (currently $675,000 per individual or $1.35 million per couple). Estate taxes are not due until the second spouse's death, so the policy does not pay out until then. The policy is put into an irrevocable trust so that it stays outside the estate and is not counted when the second spouse dies. It saves heirs from having to sell parts of the estate to pay the tax (which can be as high as 50% of estate assets).
"By far it's our top-selling product," said Jim Farmer, chief financial insurance executive officer at the BB&T unit. "It's a good, cheap product that provides the liquidity a family needs to pay estate taxes."
Hartford Life Financial Services has also put muscle behind its bank channel marketing of the insurance. In the last three years, it has doubled its roster of life insurance wholesalers, to 200. Though it has no bank-dedicated estate planning wholesalers, all of the 200 work with banks on estate planning issues.
John Gies, the director of individual life, financial institutions at Hartford Life, agreed with Mr. Donovan that insurers and banks make natural partners in this area. "It's our chance, and both our opportunity and the bank's opportunity, to educate the affluent about subjects that they don't fully understand," he said. "Banks have the relationships and the clients, but the big hole for them was the insurance element. Now they're offering insurance as a way to transfer wealth, and we're there for them."
Among other things, Hartford holds seminars for trust officers and bank investment representatives. The training includes, but is not limited to, the recent and confusing changes in estate tax law, Mr. Gies said. "Our entire message is the need for insurance within estate planning," he said. "The change in the law that affects the transferring of wealth to the next generation is only part of the training."
Insurers also teach bank reps how to spot a potential sale. "Sometimes it's something small, like getting a bank employee to notice that a customer has a very large CD or annuity," Hancock's Mr. Donovan said. "That's an opportunity. Recognize the opportunity."
The average Hartford Life estate planning client has $4 million of assets, but at Hancock "it's usually about $3 million in assets before the client looks at a sophisticated plan," Mr. Donovan said.
Banks, however, should target anyone who faces an estate tax - meaning any person with an estate larger than $675,000 (or any couple with an estate larger than $1.35 million), Mr. Gies said.
Understandably, insurers say buying - and therefore selling - this insurance makes sense even with the estate tax's gradual repeal.
"If you're wrong and taxes go back to where they are now, you're 10 years older and might not be insurable," said Jeffrey Partridge, senior vice president at R.C. Knox & Co. Inc. in Hartford, Conn., an agency owned by People's Bank, a thrift in Bridgeport, Conn. "And since the [estate tax] still exists for nine more years, if you do nothing about it and you die, your family will have to come up with the money. That's not a risk I'd recommend."