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Disability Products Can Help Introduce You to the Business Market

Disability Products Can Help Introduce You to the Business Market

| April 18, 2019

Business owners are some of the most challenging and rewarding types of clients for financial professionals, but this complexity can often serve as a barrier of entry into the business market. I’m going to explain to you why small business owners make great clients, and then I’ll show you why a disability income insurance discussion can be a great way to get in front of them and how we help them handle this problem.

According to the IRS Statistics of Income*, the chances of someone having business income increases substantially beyond 100,000 of AGI. See below:

There is a substantial amount of wealth housed within small businesses in this country. Furthermore, many small business owners are optimistic, entrepreneurial, and exceptionally hard working. They invest their life’s work into their business. Their family depends on the business. Their employees rely on the business. This makes them especially vulnerable to several unique problems, and disability is at or near the top of that list because many small businesses cannot continue to run if the owner is sick or hurt and cannot work. This doesn’t just mean medical or dental practices; all types of businesses face this uncertainty. Business owners have a tremendous amount to lose – therefore they are often receptive to a discussion about disability. Becoming sick or hurt is one of the only things that could keep them from that business. What happens if the owner is sick or hurt and out of work for a year? For 2 years? Who pays the business expenses? The staff salaries? How does the business continue to operate without him/her there? What happens to all the employees? What happens to the business itself? These are scary questions to ask, and small businesses are especially prone to their consequences. You see, for a business owner, the consequences of a disability don’t just affect him/her; they can affect dozens or hundreds of people that depend on that business for employment. Their responsibility extends beyond their own personal planning when it comes to disability. They must prepare for everyone.

So, how do you solve this problem?

Step 1 is to have a plan to address the short term. Who is going to pay the expenses while the owner is out of work? There is a unique disability product called Business Overhead ExpenseInsurance that deals with this risk. This is a short-term policy that can pay benefits from 12 to 24 months to reimburse the business for the expenses incurred while the owner is out. Staff salaries, rent, utilities, debt obligations, interest payments, and depreciation are some of the expenses that are covered. There are also policies that specifically cover the debt obligation by itself and can be a useful tool for planning up front when the loan is obtained. It is important to differentiate between Business Overhead coverage and Business Interruption coverage. The two are often confused by both financial professionals and by clients. Business Overhead is a disability policy designed to cover the owner if they are sick or hurt, while Business Interruption coverage is a Property and Casualty product that provides income to the business after a natural disaster like a flood or fire.** Both are vital but often confused with one another.

There is another important factor to consider here: the value of the business. How much does the value of the business decline if it must close its doors, even temporarily, before the owner recovers or before it can be sold? The Business Overhead Expense policy also serves to maintain the value of the business by keeping it running, even temporarily. This can preserve money far beyond the benefits that only the insurance policy provides, and it is absolutely a vital component to any discussion.

Step 2 is to have a plan to address the long term. What happens if the business must be sold? Often, buy/sell agreements are only funded for life insurance and fail to plan for the disability contingency. Why is this the case if becoming disabled is so much more likely during a working person’s years? Disability Buy-Out Insurance can help fund the sale or transition of a business if one or more of the owners is sick and unable to return to work. This product can help provide certainty in the transition situation. Each party knows what the terms of the payout will be, and the insurance policy provides the funding.

If you are looking to work with more business owners, consider starting the conversation with a discussion about protecting their business if they are unable to work. Educate the owner on their unique situation, and why a disability can present a big problem for them that other clients may not face. Educate them on the insurance solutions to deal with this problem. This is a great way to bring immediate value to a small business owner, and it will start the relationship out with momentum for other planning opportunities.

Contact an Ashford Brokerage Manager to learn more about Guardian’s industry-leading suite of business disability products and how they can enhance your business!



** Neither Guardian nor its subsidiaries issue Property & Casualty Insurance