Disability Insights

Small businesses (4-100 employees) make up most businesses in America. They are usually the result of one or two founders bringing together unique skills and growing the business. Many of them are “customer facing” businesses where the ongoing success comes from the customers knowing Partner A or B is there to work with them. Think about repair shops or dental/legal/accounting/medical practices. Losing a partner to a disability could risk losing hard-won customers.

A Business Owner Disability Could Spell Doom for the Business

If that happens, what will be the future of that business? While many of these owners may have installed employee benefit programs, how many have established a business benefits program to provide for the business’s ongoing success?

In the event of an owner’s disability, the business’s revenue can drop quickly as customers seek services from another business. Unfortunately, the vendors that supply products or services to that business (i.e., rent, mortgage, utilities, suppliers, insurers, equipment loans) still need to be paid. Employees may start to seek new jobs sensing the business is failing. That part could be the worst since businesses rely on experienced employees to make things run smoothly. Imagine losing your best people.

Business Overhead Expense to the Rescue

How can you be a hero to small business owners? Explain how a properly structured business overhead expense (“BOE”) plan can step right in and pay all those expenses while the owner is recovering. A BOE is focused solely on protecting the business. Indirectly, that protects the employees by keeping their place of employment functioning. If a business requires special training of the owner to provide services, a “professional substitute” provision provides funding to hire a comparably credentialed person to step in.

If the owner cannot return to work, a BOE plan helps to “keep the doors open” while the business is put up for sale. The new owners would have confidence that they are taking over a business with a seasoned staff, no back due payments, the same suppliers, and just a name change.

The sale would no longer be a “fire sale” but a “business continuation” transaction. The owner could salvage something more than selling a closed business without a BOE plan having kicked in.

BOE gets you in the door to the small business market. Plans can be designed for multiple owner settings, from blue to white collar businesses. Plans go as high as $50,000 per month in coverage. Show your current and prospective business clients that this is just one of the many problems they may have for which you have solutions.

— By Ed Stone, LTC, DI & Annuity Specialist

Do you want to increase your share of the business market? How would you like to uncover solid cross-selling opportunities while positioning yourself as a valuable problem-solver? 3 words: Disability… Buy… Out

The Significance of Disability Buy-Out

Some business owners have a buy-sell agreement in place. It is a widespread practice where the partners or the business owns life insurance on the partner’s lives. If one partner dies, the death clause in the agreement triggers the payment of life insurance proceeds to the deceased partner’s family or estate for their share of the business. The remaining partners absorb the deceased partner’s share of the business.

But what if the partner does not die and instead suffers a permanent injury or illness?

Most people do not know that buy-sell agreements typically carry two clauses: a “death clause” as described above and a “disability clause.” In many cases, advisors sell life insurance to fund the buy-sell agreement’s death clause, but they neglect to fund the disability clause. This is a missed opportunity as the average person is six to seven times more likely to become disabled than they are to die during their normal working years.

When a partner becomes disabled and unable to work for an extended period, the other partners and the business face the same consequences as if the partner were to have died. A disabled partner still owns a share of the business and is entitled to its profits but cannot work to help generate those profits, placing additional stress on the business.

What They Do Not Know Can Hurt Them

Check your clients’ buy-sell agreements and if it does include a disability clause, it may contain language that requires the other partners to buy out the disabled partner after a period. If that is the case, where do they get the money to do so?

One simple solution is to fund the disability clause with a disability buy-out policy for each partner. A disability buy-out policy will compensate the disabled partner in one of three ways:

• A lump sum payable after one year of disability
• An initial down payment with annual installment payments over several years
• Scheduled payments for six or seven years

You Know Who to Target

Your top prospects for a disability buy-out are in your book of business—business owner clients with one or more partners. You may have already sold them life insurance to fund one of the clauses. HAs the other been taken care of?

Straightforward Approach

Ask just two questions to start the conversation:

1. Do you have a buy-sell agreement in place?
2. What have you done about the disability clause in the agreement?

This helps uncover many new opportunities as we are sure you will find many multi-owner businesses do have a buy-sell agreement, mostly unfunded for disability. Many are outdated and have shortfalls for both life and disability, and some are even incorrectly structured.

The primary reason for asking the first question is so you can ask the second question. Nine out of ten businesses have never addressed the possibility of one partner becoming disabled and unable to work. When you help them understand what the disability clause says and that the odds of a disability are far greater than death in their working years, it creates the opportunity for you to help them resolve this key area as a problem solver. This will help differentiate you by identifying problems they did not know they had and offering a solution and will also open the door to additional opportunities and referrals.

Working with First American Insurance Underwriters, we will help you find a disability buy-out solution tailored for your clients’ needs and circumstances. Reach out to us and we will find the best solution for you and your client.

— By Ed Stone, LTC, DI & Annuity Specialist

One of the most important conversations you can have with your clients is about individual disability income insurance. It helps protect their income, or their business, if they become too sick or injured to work.

1. Savings, retirement planning, personal investments, and business ownership can all be at risk if income stops 

• Monthly expenses and bills go unpaid if a client cannot work.
• Clients need their most valuable accomplishment (their income) protected first.

2. The market opportunity is huge

Almost everyone who works needs income protection. That makes almost any employed person a likely candidate for disability insurance, particularly those who:

• Are age 30-55
• Earn at least $40,000 per year
• Work at least 20 hours per week
• Work in occupations with limited manual duties

3. Clients that already have coverage may not have enough

Since candidates for DI are employed, some may have group DI through work. However, group plans generally cover only about 60% of income before taxes.

By supplementing this coverage with an individual disability income policy, clients can protect even more of their income.

By adding individual DI coverage, clients will not have to cut back expenses that come with their lifestyle due to disability.

4. Available business solutions

Disability insurance is not limited to individual coverage. There are many corporate marketplace solutions out there, including:

• Overhead Expense: Reimburses an owner for business expenses during a disability
• Key Person Replacement: Provides benefits to a business if a key employee becomes disabled
• Disability Buy Out: Funds a buy-sell agreement to buy out a disabled owner
• Employee Benefits: Helps employers offer income protection to employees on an employer-paid or voluntary basis

5. Income protection is now fast and easy

It is important to make the most of your time and your client’s time. Processing and underwriting are now streamlined with many carriers:

• E-app: Applications can be submitted online and signed electronically
• Simplified Underwriting: The medical review process is now fast and easy with no exams or labs required (subject to certain age and benefit requirements)
• E-policies: Many carriers now allow policies to be delivered via email

Want to know more and get started? Email me at estone@faiu.com.

— By Ed Stone, Case Design, Annuity, DI & LTC Specialist