Friday, June 28, is National Insurance Awareness Day, when agents and advisors can remind their clients and prospects about the numerous benefits of insurance, share information about the many insurance solutions available, and promote a culture of preparing for many of life’s uncertainties.
“The relationships that agents are able to build with their clients are a crucial part of the insurance business,” said Michael Theo, agent marketing & PR at The General Insurance. “That’s why it’s so important for agents to leverage opportunities like National Insurance Awareness Day as a natural way to connect with clients and have those important conversations about their current and changing insurance needs, while continuing to build and strengthen that trust.”
At The General, Theo added, “we encourage our agents to ask intentional questions while tailoring each conversation to the client’s individual needs. Taking this proactive approach also provides an open forum for our clients to ask questions and address any concerns they may have. These conversations often lead to updates to existing policies or new ones altogether.”
For example, Theo added, purchasing a new vehicle, getting married, or adding a new driver, are all major life events clients may be experiencing, which have a direct impact on their insurance needs. National Insurance Awareness Day is the perfect chance to strengthen relationships, boost awareness, and promote the importance of comprehensive insurance coverage – and all agents should take advantage!”
Taking care of business
While agents and advisors are interacting with their clients and prospects during National Insurance Awareness Day, they should not forget a critical area for many business owners—business insurance. Many business owners spend their time, energy, and money trying to build a successful enterprise, but one task they often overlook is finding the right insurance solutions for their business. Regardless of how a business is structured, protecting and preparing the business and its employees can be a tricky task. Troy Randall, senior insurance and annuity consultant at RBC Wealth Management, described the following areas that agents and advisors should keep in mind for their business-owner clients:
Buy-sell agreements: These plans help create a market for the business when an owner dies, becomes disabled, retires, or transitions out of the business. The three most common types of agreements are cross purchase, entity purchase, and wait and see. “The company structure and number of owners will help determine which type of agreement is the best,” Randall said.
Employer-sponsored group disability plans: An employer can offer disability benefits that can provide income protection for an employee who is unable to perform their regular job duties due to an illness or injury off the job. Benefits provided can vary in dollar amount and length of time or coverage duration. Disability insurance plans can be short and long term.
Key person insurance: This is life insurance on the owner or key person of a company whose loss could financially impact the company. This type of insurance provides proceeds to the business and could be based on valuable intellectual knowledge of the business, reputation, or unique skills, or needed for lending and collateral purposes.
Executive bonus plans: These compensation plans are used by employers to provide additional incentives to key individuals. They are also known as Section 162 plans, named after the section of the Internal Revenue Code. In many circumstances, life insurance is used as a funding tool for personally owned life insurance on the employee, Randall explained.
Deferred compensation arrangements: These are informally funded plans between an employer and an employee, essentially making a promise to pay funds to the employee at a specified date, which could be at retirement or another future date. Many plans allow employees to have their employer withhold a portion of their pay until a specified date, usually upon retirement or some other separation from service.
Who is using what?
So, how popular are these plans among business owners? Many larger employers sponsor group disability plans as part of their benefits package, Randall said, and smaller employers need to evaluate if sponsoring such a plan makes sense for their business. Executive bonus plans and deferred compensation arrangements are typically used by larger employers.
When it comes to key person insurance, 71% of the firms surveyed by the Insurance Information Institute said they were very dependent on one or two key people for their success, Randall pointed out. Yet only 22% of respondents had key person life insurance plans in place.
While many business owners have buy-sell agreements, Randall is quick to point out that these are not “set it and forget it” types of plans. “Owners need to regularly evaluate the changes to their business, the value of the business, and the impact on partners if an owner were to pass unexpectedly,” he said.
Advantages of business insurance plans
Business insurance plans offer a wide range of benefits to business owners, added Randall. For example, buy-sell arrangements help eliminate confusion in the event an owner passes away and offer clarity as to how the business assets are to be distributed or sold to other owners. And key person coverage helps to compensate the business for lost value if a key employee were to prematurely die. Insurance proceeds can also be used to recruit new talent to the company.
Executive bonus plans and deferred compensation arrangements are selective benefits for a key individual or group of individuals working at a company, Randall explained. These allow for employees to accrue additional retirement savings and can serve as ways to recruit, retain, and reward top talent that the company needs for ongoing success.
Putting these plans in place
With the critical benefits that business insurance plans provide, it is critical for agents and advisors to work with their business clients to implement them. As Randall pointed out, business owners rely on their advisors to bring them thought leadership and ways to assist them in growing their business and retaining their key people.
“Business owners spend their time in their business; however, advisors can assist owners in working on their business,” he said. “This includes understanding how all of these types of plans can have a positive impact on the long-term performance of a company. Advisors who understand the ins and outs of this level of planning add value to business owner clients — and it sets them apart from their competition. “
Knowledge is power, added Randall, in explaining some “best practices” for selling these plans. “Learning about how all of these types of plans impact a business is key. Educating clients about how these types of plans can protect and prepare themselves, their business, and their employees is crucial to helping owners incorporate these protection solutions into a business.”
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].
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Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.