The oldest baby boomers are starting to sell thousands of dental practices, body repair shops and other capital-intensive businesses to younger buyers.
Insurers and producers want to help the buyers, sellers and lenders protect the transaction financing arrangements against disability risk. One product that could get a lift from the generational shift is business reducing term disability insurance–a product that pays a specified monthly benefit for a length of time tied to the length of a business obligation, such as a loan.
The current economic turmoil could increase clients’ interest in the products, says Jennifer Loyall, a Dallas insurance agent who specializes in serving dentists.
Business reducing term “guarantees peace of mind,” Loyall says. “Insurance is something that provides security.”
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Business reducing term disability, or decreasing term disability, has some similarities to the reducing term life insurance policies often used to back mortgage loans and other loans, according to Berkshire Life Insurance Company of America, Pittsfield, Mass., a unit of Guardian Life Insurance Company of America, New York, that dominates the U.S. business reducing term disability market.
Under the terms of the policies now on the market, the monthly benefits payments never decrease. The product is called “reducing term” insurance because beneficiaries will receive fewer monthly benefits payments, and a smaller overall payout, if an insured becomes disabled later during the policy term rather than earlier.
At Berkshire Life, terms can range from 5 years to 30 years, depending on the length of the obligation.
The maximum monthly benefit depends on the length of the policy term and is higher for policies with shorter terms. At Berkshire Life, the maximum for a policy with a 5-year term is $22,500, and the maximum for a policy with a 10-year term is $12,500 per month.
The coverage is cheaper than personal income protection coverage, and the duration of the coverage is longer than the duration of conventional overhead expense insurance, which typically has a term of 24 months or less, according to Susan LeBourdais, a marketing executive at Berkshire Life.