Four Cross-Sell Income Protection Products for Agency Growth.
By Daniel C. Steenerson, CLU, ChFC, RHU, president, Disability Insurance Services
Most business owners today feel the pinch of a lagging economy, customers not paying on time and the ever-rising cost of health care. Without income protection, it can be financially devastating when a business owner or a key employee is unable to work for a year.
Yet surveys show that most business owners aren't even aware that they can buy insurance to cover these exposures with products like business overhead expense policies, individual disability insurance (IDI), key person disability insurance, and disability overhead expense plans.
If you're on the lookout for great opportunities to fast-track your earnings, look no further than income protection products for business owners.
Read related: "Knowledge Is Power for P&C Agencies Looking to Take On Life, Health and Employee-Benefits Business."
Here are four reasons why income protection is an easy cross-sell for P&C agents:
* Business owners desperately need income protection products. A 2010 business owner market study conducted by Principal Financial Group, "A Balancing Act - Priorities vs. Plans," indicated that business owners rank business protection as their highest priority and income protection as their third highest priority. However, only one in four business owners--24 percent--has an individual disability insurance (IDI) policy, fewer than one in 10 (9 percent) of business owners have key person disability insurance, and fewer than one in 20 (4 percent) have a disability overhead expense plan in place.
* First-year and residual commissions are lucrative. First-year commissions for a business overhead expense policy start at 50 percent. Agents continue earning residual income of 5 percent to 15 percent, year after year each time the policy is renewed for the first 10 years, and a service fee paid for as long the policy is in force. Unlike property-casualty products, which are price-driven and shopped often, income protection products stay on the books, often for a decade or more, providing a great source of passive income.
* You already know and serve the market. Forget about cold calling, prospecting and relationship building. You already provide business owners with protection against property damage, liability and workers' compensation claims, so they already trust you to provide business income protection products. Income protection might be the easiest sale you've ever made.
* It's the right thing to do. If your contractor failed to mention that a major load-bearing wall in your house was not properly supported and your house collapsed as a result, you'd be rightfully angry. You might even sue for damages. The same is true for business owners. Think of a business owner's income as a load-bearing business wall. As a risk architect for business owners, it's your job to mention potential deficiencies that could realistically cause financial collapse. If you don't mention the need for income protection and disability and bankruptcy ensue, don't be surprised when you encounter an angry, litigious client.
Here are the four income protection/disability insurance (DI) products that business owners need:
1. Business overhead expense. This coverage pays for overhead expenses such as payroll, mortgage or rent, insurance premiums, office supplies, utilities, and more if an insured business owner or employee is disabled. The benefit period is usually short: 12 to 24 months. This product is a smart bet for any independently owned business.
2. Disability buy-sell: These policies are ideal for businesses with partners or several owners. A buy-sell policy allows a company to remain operating if one of the owners becomes disabled and unable to pull his or her weight. It provides cash for one business owner to purchase the disabled insured's share of the business. It's a win-win-win: The disabled owner is paid for his or her share of the business, the healthy business owner has continuity, and the business remains fiscally stable. Some DI distributors offer solutions for high limits with up to $100 million in coverage per owner.
3. Key person DI: Key person coverage is essential for businesses that employ workers with unique and hard-to-replace skill sets. Examples could include a surgeon, a scientist, an engineer, a well-known chef or even a rock star producer. Key person coverage pays a benefit to the business. If the irreplaceable employee becomes disabled, the business can use disability checks to offset resulting financial loss. Policies can be purchased for multiple employees. The benefit period is typically 12 to 24 months. Key person DI policy limits are available up to $100,000 per month or a $20 million lump sum.
4. Bank loan DI: If you know a business owner who is expanding, adding a location or opening a new business, chances are he or she will need bank loan DI. This type of policy is often required by business lenders as a condition of the loan. When a policyholder becomes disabled, the bank loan DI policy makes payments on the loan so the policyholder does not default or fall into debt. Benefits are configured to match the loan repayment, up to $100 million.
These products offer business owners real value and stability in today's unpredictable business market. Strokes, heart attacks and cancer are just a few of the leading causes of disability affecting business owners and their key employees. And recovery from these conditions is much easier without the weight of financial demise on one's shoulders.
Likewise, while the property-casualty market hardens and the employee benefits market fluctuates with health reform, income protection products are stable, in-demand, and have great potential to be a 2013 game changer for agents on the fast track.