Big Opportunities with Small Businesses 

There’s no better time for producers to enter the small-business market than today.

New life insurance products designed specifically for small and mid-sized businesses are now available to fill an enormous need. As top-line growth slows at such operations, many small-business owners are looking for ways to continue offering benefits to key employees without breaking the bank. Further, the volatility experienced during the recession has highlighted many Americans’ need to protect their ultimate dream — owning a small business.

Only the life insurance industry is uniquely poised to provide these solutions to a market that many producers have overlooked in the past. Corporate-owned life insurance (COLI) and other such products have been available to large businesses for some time. Now, similar products are being made available to small-business owners, providing similar rewards for all parties involved — employers, employees, and producers.

Business-sponsored insurance solutions — often available in the forms of universal life (UL) or variable universal life policies (VUL) — can provide a solution to employee benefits and business succession needs. Many producers have had success positioning these products as solutions for new or existing deferred compensation and split-dollar plans, buy-sell agreements, and key person insurance. And applying these life products to the small-business space can offer a new twist to traditional benefit planning, opening the door for producers who haven’t always been comfortable in the small-business market.

Depending on the type of plan used, business-sponsored solutions can benefit a variety of parties. Key person insurance, for example, delivers a death benefit to the employer, while executive bonus plans award the death benefit to the executive’s family. Split-dollar arrangements deliver part of the premiums paid to the employer, while the executive’s family receives the balance.

The selling points
Life insurance can bring a lot to the table for prospective clients, but producers are finding that the real sizzle ties back to the challenges that many businesses face today. The following selling points resonate with small-business owners and affect their decisions:

• Accounting benefits. The accounting principles guiding traditional benefits designs can differ from those of life insurance-based benefits plans. Policies with no surrender charges are appealing to the business owner. The high first-year cash surrender value (often equal or close to 100 percent of the premium paid) can be available for booking as an asset of the firm, creating nearly neutral accounting impact for their business. In addition, the life insurance component adds value for the small-business owner given the tax-advantage status on the death benefit and accumulated value of the policy.
  
• Low-cost loans. Access to loans with low interest rates through the UL/VUL policy framework can provide an attractive option for small-business owners. The last few months have seen volatile markets impact the amount of credit that owners can tap. While life insurance should be used for long-term planning, the policies can provide an additional source of credit in the event of an unforeseen circumstance.
  
• Guaranteed underwriting. Medical underwriting can be arduous on a group policy and can take several weeks to complete before a policy is issued. Through an innovative multi-life underwriting program — a new feature to the small-business market — some insurance companies are able to offer guaranteed issue policies when insuring a group of employees, usually 10 or more lives with no medical evidence. Even with five lives or more, small-business owners may be able to provide a benefit through life insurance that requires minimal medical evidence, such as giving each employee a one-question survey regarding any debilitating illnesses. A cap on each employee’s benefit amount may be set; however, underwriting allows employers to include some key employees through an efficient enrollment process without the hassle and delay of medical underwriting.
  

Ideal small-business prospects
Small-business owners looking for a cost-effective way to recruit, retain, and reward employees are great candidates for these flexible solutions. Even if an existing benefits plan is in place, a regular review of policy information is important as new product offerings evolve. Small-business owners may have the most to gain from this type of solution if they are personally underinsured. Moreover, owners looking for ways to provide a clear path for business succession are also excellent candidates for this new breed of flexible offerings.

Making client calls has been tough lately. The volatile market has not only affected account balances, but also producers’ psyches. Aligning new and enhanced solutions to the complex economic challenges your clients face can present a compelling introduction to these conversations. Historically, industry right-sizing tends to take place in the wake of a major financial crisis. Money will move, and now is the time to put into place proactive approaches to solidify your relationship with existing clients while expanding your client base. You may not have gone after small businesses before, but now with these new, flexible products specifically designed for small businesses, you can compete and grow your business. «

Janet V. Whitehouse is senior vice president and general manager of the individual life insurance division of Sun Life Financial U.S. She can be reached at janet.whitehouse@sunlife.com.