By

According to statistics, 64% of U.S. small business owners have a business continuation plan and 63% have bought life insurance as part of that plan. Thats far from the whole story. You may be surprised by what Ive learned in my 18 years in the business owner market. Here are some tips:

1. Dont assume business owners with substantial net worth have everything taken care of.

More times than not, youll find that high-profile business owners have taken little or no action on business or estate planning for themselves, their businesses or their families. Or they have some insurance for key people or themselves, but the ownership of the policies or the structure is set up incorrectly.

Many times, the corporation pays the policy, but there exist no split-dollar agreements or provisions for the contract to specify beneficiaries or return of premium to the premium payor. Often times, the beneficiaries of a life policy do not match the correct type of business continuation agreement.

Also, business owners may not have reviewed their policies in awhile or have inadequate amounts of insurance.

2. Dont assume you can tell business owners what they need to do.

You have to educate business owners and explain why planning is important. Often, they assume their other advisors, such as CPAs and attorneys, are handling planning. Because the CPA and attorney manage the tax work and know the numbers end of the business, the owner may believe these advisors would recommend the funding solutions for the business and have all of the beneficiaries named correctly.

3. Dont assume business owners understand how life insurance works.

Typically, they dont understand no-lapse guarantees, premium funding or the cost of insurance and related charges and expenses. They understand term insurance, but not necessarily other types of contracts. Explain the advantages of each type.

4. Dont assume the owners advisors understand how life insurance works.

Dont make a blanket recommendation on the death benefit. You need to educate the advisors as to the type of policy you are recommending and the reasons why. Often, agents make a recommendation without fully including the advisors. Thats when the advisors get defensive and wont recommend the product.

5. Dont assume you should product-sell the business owner.

A lot of agents push products. That tends to backfire. Good salespeople might sell the product, but it may not fit the owners needs or objectives. He or she may not realize it at the time of sale but will figure it out eventually. Dont product-sell the business owner; consult and become an advisor.

Actions to take with business owners:

a. Build trust from the beginning.

Most business owners think planning will take an inordinate amount of time and require uncomfortable decisions of them. You have to explain that they will probably change these decisions in the years ahead, but they must do business continuation planning now.

Break the planning into 3 or 4 categories, address the issues, then lay out the solutions. Once you put yourself in an advisory mode, the owner becomes receptive to your ideas and recommendations.

b. Involve the business owners advisors early on.

When youre talking to the business owner about his business continuation plan, pull in his advisors. Ask the CPA and attorney if they can think of other ways to structure the plan.

The benefit: You create a team approach that enhances your credibility with the business owner and builds rapport. You can be the quarterback.

You may want to leave the technical aspects of planning to the attorney or CPA, but you can itemize the main issues and provide a summary for the business owner. Remember, the owner wants the big picture: Whats the plan going to do? What are its benefits? How much will it cost?

c. Offer a range of options.

Often, the advisors play devils advocate, being conservative in their recommendations and looking at worst-case scenarios. By offering different product and funding options, you build credibility with the other advisors.

Also, if you offer solutions other than insurance funding (e.g., sinking funds, borrowed funds, installment sale, during lifetime or at death), then the advisors will see you are not pushing insurance as the only option.

d. Keep your recommendations concise and simple for the business owner.

If you make the business continuation plan too complicated, the owner wont take action because he or she doesnt understand it. You and the advisors may understand it, but after all, whos writing the check?

Summarize in the plan all that youve discussed and what your recommendations are. Then arrange for at least a once-annual review of the plan to ensure that its current and adequately funded.

If the plan needs modification, then get everyone togetherthe business owner, CPA and attorneyto update the documents. This will ensure a satisfied client and help cement your role in the process.

New England Financials Troy Shreve, CLU, heads his own business, Benefit Management, in Lincoln, Neb. His e-mail is tshreve@benefit-management.com.


Reproduced from National Underwriter Edition, September 9, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.