When considering the small business market, I believe one of the most needed yet undersold insurance products is business overhead expense (BOE) insurance. Let's take a closer look at BOE and how to position it with your clients.
'Glass half full'
Small business owners tend to be optimistic risk-takers who may believe a disabling condition "won't happen to me." Even if they agree the threat of disability is real, many believe they could get by with money from their business if they become disabled. Others may believe that they could use personal funds or take on debt to keep their business afloat. Because of this, advisors have a lot of educating to do.
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But the effort is worth it, because the need is great. What if the owner also is the primary revenue-generator for the company? That's usually the case with small professional businesses. How will a small business pay its bills if the owner is out of action for even a few months? To help business owners understand the risk, a good way to start is by asking questions.
Positioning the need for BOE
Here are some questions to get business owners thinking:
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When is the last time you took a six-month vacation? Never? Why not? Are you sure you could continue to take money out of the business if you were sick or hurt and unable to work?
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If you can't work and revenues start to slip, how are you going to make payroll? Pay rent? Pay your creditors?
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Would it help if you had money to hire someone as your temporary replacement while you recovered?
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If the worst happened and you couldn't recover, wouldn't you want your business to be healthy so you could sell it for fair value?
The BOE concept is simple
BOE provides reimbursement for certain business expenses incurred by a business during the insured's disability. It typically covers ordinary and necessary operating expenses, including employees' salaries and benefits, rent payments, utilities and even the cost of hiring a replacement for the disabled owner.
In a BOE claim, the business continues to pay its bills from company revenues, but then submits those expenses to the insurance carrier, which reimburses them. BOE policies generally have short elimination periods — 30 or 60 days are most common — and short benefit durations from 12 to 24 months.
The point of BOE is to provide quick financial help and keep a business afloat while the owner recovers. An owner's disability that extends beyond the benefit period of 12 to 24 months may mean that the business will need to be sold. In that situation, benefits paid by a BOE policy allows the business to continue to operate and retain its value while a suitable buyer is sought.
Prospects for a BOE sale are business owners aged 60 or younger, who are either sole proprietors or in a partnership with five or fewer partners. The top buyers are dentists and physicians, but CPAs, engineers, attorneys, and other small, closely held businesses also have a need for BOE.
If you ask a small business owner about BOE, you'll be one of the few insurance advisors doing so, and you can distinguish yourself in this market. You also can help your clients protect the enterprise they've worked so hard to build.
Doug Waters is the second vice president of individual disability income insurance sales at Standard Insurance Company.
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