Banks may be on for a record year in terms of sales of life insurance, according to Kehrer-LIMRA’s new Bank Life Report. Second-quarter premiums of $4.6 billion came largely from the huge growth in popularity of single-premium products.
While it has enjoyed a recent jump in sales, single-premium life has always outsold other types of life insurance in banks, says Scott Stathis, managing director and chief operating officer and : It looks and smells more like an annuity and the sale is transactional in nature. While it should be sold from a wealth-transfer standpoint, it is in sometimes sold a substitute for a fixed annuity.
Why? Depending on the structure of the product, a policyholder can borrow against the death benefit in order to create an income stream, but Ken Kehrer, Kehrer-LIMRA’s research director, points out that single-premium life’s real advantage is that its death benefit can be twice that of a fixed annuity for a male policyholder in his fifties. In fact, many people who bought fixed annuities for the death benefit with some access to the underlying assets in an emergency could have been better off buying single-premium. “Many people invested in fixed annuities with a view to leaving money to their kids or grandkids while recognizing they might have to tap into those savings for an emergency,” he says. “Single-premium life fits that objective better.”
Kehrer notes that for clients planning on using the money in retirement, when their tax rate may be much lower, the annuity may be a better vehicle, but in the recent economic environment, with investors’ portfolios down substantially, moving money into a single-premium-life product was a quick way of recovering the value of an estate due to the higher death benefits. “Moving money out of an annuity or mutual fund doubles the death benefit, or increases it substantially, depending on your age,” he says.
Life insurance’s prodigious run in banks began in the second quarter of 2009, when insurance premiums hit $3.1 billion, up from $1.7 billion in the first quarter of 2009. Premiums have steadily advanced since then and show little sign of stopping.
Stathis points out that life insurance is still a pretty minor product in the bank channel. While life insurance premiums hit a high (for them) of 4.6 billion, the $200 billion in sales of annuities through banks last year dwarf life insurance.
However, taken on its own, life insurance has made some impressive strides. Sales in the first half of this year were 29% higher than the same period in 2009, the largest growth rate in any life-insurance distribution channel.
“I don’t think banks can sustain this growth, but neither will they drop to where they were,” Stathis says. “The seal is broken, the stuff is flowing and a good percentage of reps are getting used to selling life insurance.”
He adds that given single-premium life’s popularity among traditional fixed-annuity buyers, being comfortable selling life insurance diversifies advisors’ product spectrums should the market for another product they sell dry up. Now low rates forced heavy fixed-annuity sellers to learn to sell single-premium life, “the watermark will be a little higher than where it was,” Stathis says.