Do I Need Business Overhead Expense Insurance?

 

When I speak to groups about their insurance, I often mention "Holy Trinity" of insurance, which is their medical insurance, life insurance and disability insurance. The last one, disability insurance, I tell them, is just is important as the other two, because if one were to get sick or hurt and couldn’t work, the bills don’t stop coming and will need to be paid. Disability is basically paycheck insurance.

But what if you are, like me, self-employed, a 1099 employee or a business owner and don't have access to a group plan? What would happen to your business if you were unable to work?

Which is why I like to bring up Business Overhead Expense  (BOE) coverage. It’s an insurance product most people probably haven’t heard of before even though it's been around for a long time. And it definitely one of the most undersold policies out there, probably because there are agents who don’t even know about it.

Business overhead expense insurance is designed to keep things going when a disability or illness requires you to be temporarily absent. This is different from personal disability insurance, which makes payments directly to you to replace lost income if you can’t work.

If you own a business, it’s important that you understand how BOE works so you can decide if it’s something you need.

BOE is a type of insurance that pays benefits to your business if you’re unable to work. For example, if you’re in a car accident and are seriously injured, or you’re diagnosed with a serious illness, your policy’s benefits could kick in to provide the business with cash flow while you recover.

This type of insurance is typically used to help manage your business’s day-to-day expenses. It helps your business continue as usual even when you can’t be there.

What BOE Insurance Covers

BOE is business-specific, meaning it applies to expenses related directly to running your business. The types of expenses you can use business overhead expense insurance to pay include:

• Rent or lease payments
• Loan payments
• Insurance premiums
• Utility bills
• Custodial services
• Payroll for employees
• Tax obligations
• Business credit card bills

There are, however, some things that overhead expense insurance is not designed to cover. For instance, these policies don’t extend to expenses related to improving or expanding your business, such as buying new equipment or opening a second location.

Overhead expense insurance also doesn’t cover your salary. That’s why you would need an individual policy on yourself.

It’s worth considering purchasing this type of insurance if you’re the person who’s primarily in charge of running your business. Having an overhead expense insurance policy in place means the bills continue to get paid for the business when a disability or illness puts you on the sidelines.

Depending on the terms of your policy, your insurance company could pay benefits for up to two years after you file an eligible claim. That can be helpful if you have a serious disability, illness or injury that requires extensive rehabilitation or physical therapy.

Keep in mind that not every business owner may qualify for this type of insurance. If you’re self-employed as a freelancer and run a business from home, for example, you may not be able to purchase a policy. You may have to stick with a regular personal disability insurance policy instead.

There are advantages associated with having this kind of insurance for your business.

Here are some of the key benefits of BOE insurance:

• Your business can remain open even when you can’t be there to run it
• Essential business expenses can be paid for using policy benefits, allowing you to preserve your business’s cash reserves
• Being able to meet payroll means you have a better chance of retaining key employees
• A BOE policy decreases the odds of having to dip into personal savings to cover business spending
• Premiums paid for coverage may be tax-deductible
• Business expenses paid with premiums may also be tax-deductible

In terms of the downsides, here are a few things to keep in mind:

• Policies don’t pay benefits to you directly so you’ll still need separate disability coverage for that
• Benefits typically have a time limit of 2 years and can’t be paid indefinitely
• Any benefits you receive may be considered taxable income for the business
• Policies may enforce a maximum monthly benefit limit, which may be less than what you need to continue operations

As you can see, the pros generally outweigh the cons but they still need to be factored in. And you also have to consider the potential return on investment for purchasing this kind of coverage. Having it can be a safety net if you get sick or become disabled but if you never end up using your coverage, you may feel as if you’ve paid premiums for nothing.

The key advantage to having a BOE is that it gives you time to make a decision if you are disabled. You probably won’t know when or if you’ll recover, or if you should shut down the business, sell it or keep it open. That 2 year benefit window gives you time to figure it all out.

If this is something you think you need, drop by our website and make an appointment to have an agent call you. Or you can leave a question on our contact form. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! Thanks!

The Infamous Buy-Sell Agreement and How To Fund It

One of the groups of people I love to help is small business owners. As a entrepreneur (I have an insurance agency and a consulting business), I can relate to these people. Many have left the corporate world to take on the day-to-day struggles of owning their own operation, and in that process they wear a lot of hats. Every once in a while I will come across a business that has multiple partners with each partner filling a role that the other partners don't want or aren't as good at performing. In other words, less hats. 

My father used to say that "the worst ship to sail on is partnership". He wasn't nearly as witty as he thought he was, but I understood what he was trying to say. Years earlier he had opened a small engineering firm with someone and apparently it was a horrible experience for him. His version of events was that he was doing all the work while the other guy just took half the profits. I don't know how accurate this was, but I do know that he rarely spoke of the other partner and that the business was dissolved after a couple of years. 

I have also had some shady dealings with "partners" who didn't quite carry their part of the workload and couldn't get out of their fast enough. After losing money and feeling stressed I decided to work solo from that point on. Now I just have what I like to call "professional business arrangements", in which my income isn't reliant on the production or work ethic of someone else. 

This doesn't mean that partnerships are bad for everyone. I've seen many that work, with partners who are college friends, family members or spouses. With businesses such as hotels, real estate firms, restaurants and others, partners find a way to make the most of each person's strengths and weaknesses. And in the process, they put their egos aside and share the success of their work. 

On those instances when I do get the opportunity to work with business partners I eventually ask if they have a contingency plan if one of the partners were to die. You see, people typically think long and hard about starting a business, but few consider exiting a business, much less having a person they rely on for their income to die too soon. The responses I get are varied, from "I'm not worried about it" to "I never gave it much thought". Scary.

An old friend told me that his nephew had opened a sports pub/wing joint with a distant cousin. Neither of these two was married and both were questionable when it came to their character. "Sounds like they could use a buy-sell agreement," I said. 

A buy-sell agreement is a legal document that states that if one partner dies, the other partner has the option of buying out the dead partner's stake in the business. This is important because the surviving partner may not want to be in business with the deceased partner's widow or next of kin. Especially if they never got along in the first place. 

Sometimes the buy-sell agreement is part of the legal documents that form the business, but if not, a good attorney can write a short document that can fit the bill. The most common way to fund the buyout of dead partner's stake in the business is with a life insurance policy. 

I met with the two cousins separately. The first one I met with was cordial and I explained that if his partner were to die he would be in business with the guy's mother. He frowned and made it clear that wasn't  something he would want. He knew the guy's mother and wasn't very fond of her. 

The second partner had a different view of the world. "If you're cousin dies, you're going to be in business with his grandmother." The grandmother was a tough lady who was known for being an even tougher businesswoman.  He shrugged his shoulders as to say "so what?" 

As the first partner saw the value in what I was presenting, the second one had no desire to buy a life insurance policy on his cousin. The deal never happened, mostly because they couldn't get on the same page when it came to this or other topics. Shortly thereafter their business shut down. 

When I talk to business partners, I throw out a "worst case" scenario. "How would you like to be in business with your dead partner's widow and her new boyfriend?" As bad as it sounds, it happens more often than you would think. A good buy-sell agreement funded with an affordable life insurance policy can be a simple fix to a potential nightmare. 

If you have a business partner, or multiple partners, and don't have a buy-sell agreement in place, I highly recommend you have an attorney draw one up for you. And let us know if we can help you put a policy in place to help you fund that agreement. In the meantime, stay healthy and feel free to comment below. 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast.

Our Interview With Life and Health Agent Davan Johnson

I asked my good friend, Davan Johnson, to let me pick his brain recently. He's the owner and founder of Davan Enterprises Insurance Agency, as well as a integral part of his community and active member of several service organizations in and around his home town of Bristol, Tennessee. We discussed his insurance business, his thoughts on finding clients and sales in general. He offers great insight and I thought it would be helpful to know what makes us insurance agents tick. 

Thanks for talking with me Davan. First off, I'm curious as to how you got into the insurance business.

I had left a career in the restaurant industry that I thought I was going to retire from but quickly realized that I didn't actually own or have control of my destiny. So I was trying to decide what was next. I knew this time I wanted to do something that created residual and passive income. I chose insurance because I had been around it all my life with my mom using it as a fall back position. She was typically always an employee though, not an agent. But I remember pretending to fill out paper applications in an empty office whenever I had to be at the office with mom. She had a whole office building to herself with multiple offices, kitchen and waiting area. Additionally, I wanted to have a business that would allow me the time and freedom to choose my own schedule, as well as spend time with family for vacation and holidays. I had given up a lot of that working in the restaurant business.

Tell me how you find your prospects.

I used to do a lot of cold calling when I started out. I'd spend my time making lists and driving to make impromptu appointments, wasting a lot of gas going back and forth. Driving ALL day and almost all week to only get one or two appointments, and possibly resulting in one case or actual sale out of that. Now a lot of people make it in the business cold calling and that's great for them, but I have come to realize how I work best. So I begun doing more networking. Joining groups and setting up one-on-one meetings to get to know each other, which present warm leads and referrals. My business is about 90% referrals now. I work smarter, not harder, and these people are actually calling me. They are the ones have need, have time and money to spend on my services. I also positioned myself to offer unique products that most insurance agents don't so I can work with other agents and not be seen as a threat or competitor. 

Is there a product you think everyone should have?

Yes, I think there are several but one of the most uncommon ones is Legal Insurance. Unlike any other insurance we carry you don't have to wait for something BAD to happen before you can use it. You can be proactive. It's like an attorney on retainer with the power of a law firm in your pocket thanks to the apps and technology. When I was unemployed for a certain duration trying to figure what my next step was there were two budget items I was resolute not to cancel: My life insurance and my legal plan. People don't know this type of thing exists and yet it is so powerful giving people peace of mind so they don't have to check their checkbook before they can check their rights.

How do you prepare for a client meeting?

I actually use a worksheet to help guide me to the result of the meeting. But also, I try to review their social profiles to learn about them. I use the FOR method: Family, Occupation and Recreation to get to know them. It's all about finding out what is best for the client's needs.

Has Covid affected your practice?

Not much, because I have positioned my agency to be more of a referral business. Because of that it is important to keep the networking relationships strong. And during some of the downtime I've been able to re-evaluate systems in the my business.

What did you do with your first commission check?

Well, after I learned to reconcile a commission statement I most likely saved most of it because I didn't know when the next one would come. We got paid weekly.  I do know that I finally had some gas money and recouped what I spent on insurance licenses. I honestly don't remember how much my first check was which is sad, but I do remember my "can sell date" was 9/29/2012. That was the day I was officially able to sell and write my own policies. In my first month I had earned several awards, but no one was really there to mentor me on "cycles" of insurance or that when you get the BIG checks to hold some back for the slow times. Since then I pay myself a livable income and save the rest as an "emergency fund".  

Tell me about an usual or strange encounter you've had with a client.

The one encounter that comes to mind was when I was completing a life insurance application for a client. I had spoken to the client over the phone several times and the plan was that during our first in-person meeting we complete the app and submit it. This individual had the appearance of a male but when answering the questions on the application, everything was female. It was awkward for me because I had to get past some preconceptions and this was my first experience in this kind of situation. I basically decided that ultimately it was a decision for the underwriter and not me. So I filled out the application as the person responded and submitted it. It was issued! I had heard stories of people doing this before in order to get a more favorable rate, since females can get cheaper rates. Anyway, in this person's case it was legitimate and I was just unprepared for it. 

Thanks for your time, Davan! 

I hope you were able to get some quality information out of this interview. I always enjoy listening to successful agents and learning a thing or two. At Surf Financial we strive to grow and help our clients in the best ways possible. 

If you have any questions about this interview let us know in the comment section.  And as always, stay healthy

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.

  

Do You Have the Old Kind of Life Insurance or the New Kind? Part 2

In the last post, I discussed how life insurance carriers were struggling with the long term care market. Check out the post if you want to catch up.

As the stock market dropped in 2008, claims reserves (where your insurance company keeps your premiums) dried up like a raisin. And claims were higher than expected. To offset this, almost all of these policies had a provision that allowed for a rate increase if need be. After 2008, several companies put in requests with state insurance commissions for rate increases, from 17-20% on policies that were in effect. Some companies did this multiple times.

I've always considered people who buy long term care coverage, to be "forward thinking". Unfortunately that forward thinking wasn't paying off for many as they saw their rates increase.

Also, at the end of the last post I mentioned the number one objection when people discuss LTC with an agent. The conversation usually goes like this.

Client: How much is this going to cost?
Agent: $120 a month.
Client: That's a lot of money. What if I drop dead and don't need long term care? What happens to my premium?

And that was the deal killer for many. Of course you could purchase a "return of premium" rider, but that would nearly double your premium. There had to be a better answer.



Now we have life insurance with long term care riders which are handled differently by different companies. Some underwrite the rider separately, others just underwrite the life insurance part. Some just called them "living benefits" to work around certain requirements by state commissioners. On the whole, it's just life insurance that you can use while your living.

It's life insurance that you can use for long term care if you need it. And some now have other benefits. We offer one with a critical illness component in the event of a heart attack or stroke. And the cash value can also be used as a retirement supplement. And being life insurance the rates are locked in. No rate increases!

So there's the old kind of life insurance and the new kind that you can use before you die. If you have questions or want to drop us a comment below or go to our website and request information.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient. 

Cold Calling In Insurance (and other places)

When I first got into sales professionally I was taught to cold call and the mentality that went with it. I was selling accident plans door-to-door in rural areas of North Carolina and the hours were grueling. We'd have a meeting in the morning of a local diner and then spread out to assigned areas throughout the county.

Dropping by someone's home unannounced was the nature of the work, and many times the people were home. If someone was home, I'd go through my spiel only to be told that they wanted to wait for their spouse to come home and discuss it over. The whole scenario was dumb.

Through all of this I learned that how to introduce myself to total strangers, how to persevere through a lot of rejection, but most importantly, not to be afraid of the cold calling process. Knocking on doors was easy if you could handle people not wanting our product.

A few years later I sold office supplies for a small company. With just a few accounts I had adopted from a previous salesman and barely any knowledge of the products, I had to develop my own strategy to build a clientele. Using my experiences from the world of accident plans, I methodically worked one office building at a time, walking in with something in my hand to give out other than a business card. I would distribute our new catalog, or a sale flyer that I designed myself (this was before everyone had a computer with a word processor).

Working B2B was so much easier than calling on people in their homes and my success rate was above average when you consider the resources I was given. People were happier to see me at their businesses than their homes.

That office supply company was okay, but there was no room for growth and I didn't want to be an old guy asking people if they needed paper clips. I eventually got back into insurance again, but I decided to call on businesses to grow my book of business. Many times the sales calls result in individual policies, so it all works out.

Cold calling has gone by the wayside for most people nowadays. There are other ways to get clients, but I still use those basic skills to work a room or networking event.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.