Broker Check
5 Impactful Words That Are Hindering Your Efforts To Sell Disability Overhead Expense Coverage

5 Impactful Words That Are Hindering Your Efforts To Sell Disability Overhead Expense Coverage

| July 08, 2020

Some time back, I spoke with an agent looking for advice on how he could encourage his small business-owning clients to take action and buy disability overhead expense policies.

The rapport the agent had with his clients was solid. After looking over his recent cases, he was obviously on the path to securing disability overhead expense coverage for them. What happened that they didn’t accept any offer for his help?

I began asking him how he approached the topic of DI overhead expense policies with his clients. Before I knew it, he threw down an illustration on my desk, saying, “I see you’ve got a business with lots of expenses, so you should take a look and consider a disability overhead expense insurance policy.” That was exactly what he said!

And, therein lies the problem!  He never considered the business owner’s perspective of how the conversation sounded and used some of the worse choices of words to help him move the case forward. The five words often used in this situation include:

  • Expenses
  • Disability
  • Overhead
  • Insurance
  • Policy

These terms were clear obstacles in his effort to help clients see how they could and should protect their business. By chance, what words and actions could have been different that would instead work in his favor? (And yes, he did make changes that made an impact on his practice).

Pause and think for a second; what do you feel is the one consistent thing that business owners want for their business?

With almost no exceptions, the majority of owners want a business to be valuable enough to sell to someone/entity, allowing them to retire in a life of luxury after years of hard work and dedication.

How can small business owners, responsible for generating revenue, boost their company’s value now and in the future? Keep in mind that these businesses are typically valued at the capitalization rate or multiplier, which anticipates a constant rate of return from profit.

Before we move on, let’s acknowledge that the rate or multiplier assumed is of great importance, and it should be reasonable for the market. After all, your client might find a willing person to overpay for the company, but ask yourself if that’s financial planning or financial hoping?

Besides the capitalization rate, what other factor impacts a small business value?

If you guessed profit or net operating income, you’d be correct!

And if net operating income impacts the value, what predicates a healthy NOI?

Of course, revenue less expenses.

Therefore, if the revenue drops because the owner is unable to bill for professional services, that doesn’t alleviate the expenses. What then becomes of the business profit? What happens to its value?

Simply put, when profit drops, the value drops shortly thereafter. In most cases, this is not what your business-owner client pictured for their future.

So how could my agent friend have improved on his presentation to his business-owner prospect? I think it’s best to speak in your business-owner client’s language, using terms they understand, such as profit, revenue and value. When you explain how a disability overhead expense policy protects them, they have a better understanding of its effect on the business value.

One final thought about disability overhead expense policies: it does two important things for small businesses, especially those of professional occupations where revenue is owner credited. These two things are:

  • The policy ensures the business stays as healthy as possible, even when the need arises for a temporary professional so that the owner can recover and go back to work.
  • Should the owner not be expected to recover, they still position the business is a way that allows them to convert business wealth into personal wealth through the sale of the business.

Here’s something to keep in mind: My wife’s great uncle was a fantastic small-town Alabama dentist who suffered some health problems that kept him from the practice, and he eventually passed away. His practice, which he had built so strong, became next to nothing. Now, consider what a dental practice would be worth if there are no patients and just decades-old dental equipment remaining?