Thirty-plus years ago, life insurance carriers trained their large career agent forces to call upon small business owners to deliver life insurance-based solutions designed for their firms. These solutions included business succession and retirement planning, executive benefit plans and key person insurance.
Now that most of those carrier-trained agents have retired or are nearing retirement, the small-business market has become underserved. Today’s generation of agents has generally not been trained on how to identify and serve the life insurance-related needs of small business owners. This shortage of expertise represents a tremendous opportunity for agents who are willing to seek the necessary training and gain the expertise.
Insurance Needs of Small Business
Small business owners typically worry about the day-to-day running of their businesses, but they are subject to certain unique risks and also have certain unique opportunities. Our job as agents is to meet with them, to do comprehensive fact-finding, and to help them to see those risks and opportunities.
One risk is that the smooth operation, profitability, and value of a small business often depend upon one or a few key employees. What protects the owners of the business in the event of the death or disability of a key employee? The problem can become particularly difficult if that employee is also a part-owner of the business and wants to be–or must be– bought out by the other owners.
The answer is a key-person life and disability income insurance policy owned by the business. The benefits can be structured as a lump sum, a series of payments or some combination. While the premiums are not deductible as a business expense, benefits are paid tax-free to the business.
If that key person is also a part-owner of the business, the owners should consider having a buy-sell agreement. In the event that a part-owner becomes disabled or dies and leaves his or her share of the business to heirs, a buy-sell agreement funded by insurance helps preserve business value, minimize disruption, and assure that the exiting owner and the continuing owners are treated fairly.
If a key person is not an owner, it may be in the owner’s best interest to consider setting up an executive fringe benefit plan that helps tie that employee closely to the company. Insurance agents can propose a number of solutions for the owner, such as a Section 162 bonus plan, a deferred compensation plan, or a supplemental executive retirement plan (SERP). Each of these can be discriminatory, meaning that the owner can choose who will and will not participate in the plan. The owner can also create customized golden handcuff provisions.
Another key need is to help the owner plan for ownership succession and retirement. For many small business people, their company is a significant portion of their wealth. The fact that the owner is also a key employee makes many small businesses worth considerably less at the owner’s retirement. Thus, ownership succession and retirement are issues that need to be considered and planned for many years in advance.
Insurance agents can offer a wide variety of tax-advantaged solutions for small business owners to accumulate funds for retirement, such as group or individual 401(k) plans and 412(e)(3) defined benefit plans. Some life insurance-based plans can help owners save amounts on a tax-advantaged basis–amounts that are above and beyond what a qualified retirement plan could accept.
Preparing To Serve Business Owners
All of these solutions sound complicated. But therein lies the opportunity. If you are willing to seek out training to give yourself the knowledge to provide these solutions to small business owners, you will find relatively little competition in this market. And once you are trained in how to undertake comprehensive fact-finding with small business owners, you will find that they have many challenges that insurance can address.
Examine your roster of clients, and chances are you will find small business owners. Don’t forget that many doctors, accountants, real estate agents and other professionals are sole proprietors. You can also ask your clients who are employees of such businesses to introduce you to the owners of the businesses.
If you are a health insurance agent, chances are you have a large book of small business owner clients. The opportunities to add life insurance-based solutions to your repertoire are tremendous.
Who can be your first client? You! If you are an independent insurance agent, you are essentially a small business owner. When you seek out training on solutions to these challenges faced by small business, you will learn how to help yourself, and you will learn how to help others in the process.
Then start working your natural market–friends, family and clients. Expand your circle of contacts by joining your local chamber of commerce and attending every activity in the business community you can. Some carriers have put together excellent small business marketing kits. Use these to learn, prospect and uncover solutions for your clients.
Successful agents identify underserved needs in the marketplace and make the effort to build their expertise and serve that need. Start down the road to success by building your expertise in the life insurance needs of the small business owner marketplace.
Richard Finkelstein is director of advanced markets at Partners Advantage Insurance Services, Colton, Calif. You may e-mail him at [email protected].