A new type of insurance product, which combines life insurance with long-term care coverage, has the potential to generate increased revenues for banks while at the same time appealing to their most valuable clients, the affluent.

The combination product has been around since the mid-1980s and occupies a very small niche in the consumer market. Yet some bank-insurance experts believe the product holds promise for a lucrative future. "It should do very well in banks," predicts Ken Kehrer of Princeton, NJ-based Ken Kehrer Associates, a firm that does research and consulting on insurance sales.

This particular breed of hybrid product operates like a single premium life insurance policy, requiring the customer to make a lump sum payment of at least $10,000, with the average falling around $60,000. The policy doesn't provide the customer with any income, so it is important that the money for the premium come out of assets that the customer doesn't expect to draw on for the rest of his or her life. Therefore, the hybrid is aimed at banks' most sought-after customers: individuals who have assets to protect, and large amounts of savings to put down for the single premium. In fact, to assure that purchasers of this coverage can afford to spare such a large sum, insurance companies often require their customers to be worth a minimum amount in liquid assets.

As in a traditional life insurance policy, the premium collects interest and, after the death of the insured, goes to surviving beneficiaries as a tax-free death benefit. The unique feature of a blended life insurance/long-term care product is that the insured can access the death benefit to cover the expenses of long-term care, which can include nursing homes, at-home care, hospice care, or assisted living facilities, to name a few options. But the insured has access only to a fixed amount of the accelerated death benefit per month, and any costs exceeding that allotment must be paid for out-of-pocket.

The combination insurance policy appears to be the right product at the right time. Long-term care has become an increasingly important issue in the United States, due to both the aging population and the skyrocketing cost of long-term care services. The federal government's most recent census projects that people over the age of 65 will make up more than 20% of the nation's population by the year 2030, compared with 13% in 1990. Herb Perone, spokesperson for the American Council of Life Insurers (ACLI), adds that one out of every three men who reach the age of 65 will spend time in a nursing home, and one out of every two women will follow suit.

And although movie theaters offer entrance at a reduced price to senior citizens, nursing homes and other long-term care facilities are not so generous. ACLI's study, Can Aging Baby Boomers Avoid the Nursing Home?, quotes the average cost of a nursing home in 2000 at $44,100 per year and predicts that this will more than quadruple by 2030. A product that blends life insurance with long-term care coverage represents one of the insurance industry's attempts to answer the costly needs of the nation's aging population.

On the other hand, sales so far have been modest, at best. According to Perone of ACLI, the impact of these policies on the insurance marketplace has been "so insignificant that it wouldn't show up on the radar screen."

But some insurance companies that are selling the package through banks remain optimistic. Among them is Golden Rule Insurance Co., of Indianapolis, IN, which has offered a combination life insurance/long-term care product known as Asset-Care since 1989. Bruce Moon, retirement planning specialist at Golden Rule, was enthusiastic about the future of the policy, especially in light of the insurance company's relationship with banks. "Our portion of the market is not insignificant," he says, "and continues to grow dramatically from year to year."

Golden Rule started focusing on the bank market four years ago, spurred by data collected from focus groups and interviews. Target customers claimed to be more comfortable discussing their insurance coverage with people from their bank branch, rather than with an insurance agent. According to Moon, banks currently make up about one-third of the business generated by Asset-Care. (The remaining two-thirds come through the standard insurance agent channel.) Banks selling Golden Rule's product generated $2.4 million in sales in 1997, $4.3 million in 1998, $6.1 million in 1999, and $10 million in 2000, and Moon predicts that the growth will continue through 2001. Yet in spite of such progress, Asset-Care sales remain a drop in the bucket compared with banks' other sources of revenue.

Banks must provide their own insurance professionals to actually sell Asset-Care, and Moon admits that banks that haven't previously focused on their insurance area would have trouble explaining the policy to customers due to its complexity. Yet he is confident that banks with pre-existing relationships with insurance professionals are well equipped to sell Asset-Care.

Firstar Insurance Services, a bank insurance agency owned by U.S. Bancorp that has ranked among the top sellers of Asset-Care for the past three years, has been happy with Golden Rule's blended product. John Falk, a regional manager, says, "In a nutshell, I love the thing. It filled up a huge hole in what we were doing." Falk notes that, in particular, the single premium is able to satisfy more of Firstar's customers' needs.

New York Life Insurance Co., based in New York, recently introduced Asset Preserver, a product comparable to Asset-Care that also so far has failed to generate significant revenue. Since the product came out in 1999, the company has sold only 1,015 policies. Yet John Nash, the Asset Preserver product manager, says that the hybrid performed better than originally projected.

Although New York Life's primary distribution channel is through its agents, the company has recently developed a relationship selling Asset Preserver through the Community Bankers Insurance Agency (CBIA), an association of approximately 20 small community banks in California. Rather than providing their own insurance professionals, CBIA banks refer their customers seeking life insurance to a local New York Life agent. "Most banking institutions don't have what we would consider to be effective sales cultures," explains Gary Findley, CBIA founder. "Yet studies have shown that customers have a stronger relationship with their bank than they do with their insurance company."

The CBIA referral system enables banks to strengthen their ties with clients without having to train personnel to sell insurance. According to Don Cavanaugh, CBIA's vice president of marketing and sales, approximately 20-40% of the commission on every sale goes to CBIA for the referral, while New York Life claims the remaining portion of the fee.

Asset Preserver was approved in the state of California only a few months ago, and although applications have been filed, they are still pending and no Asset Preserver sales have yet been made through CBIA.

Nonetheless, enthusiasm prevails on both ends of the affiliation. Karen Finkston, spokesperson for New York Life, was hopeful that the partnership would create opportunities for the company to boost Asset Preserver sales. Doug Spencer, president/CEO of Redlands, CA-based Redlands Centennial Bank and CBIA board member, says he is confident that Asset Preserver would fare well through the agency. "In my estimation, it's a really easy sell," he says. "The product is tremendously flexible." Spencer attributes Asset Preserver's limited success thus far to its newness to the marketplace and anticipates a rise in sales over the next few years.

Despite the optimism surrounding these blended products in today's marketplace, it remains to be seen whether the hybrids can live up to such high expectations.

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