Reaching the Small Business Owner

Transcription

1 Advanced Sales Reaching the Small Business Owner Small Business Strategies & Solutions Marketing & Resource Guide

2 Only 35 percent of all small businesses have a formal business continuation agreement in case of an owner s premature death. 5

3 Small business owners offer big opportunities Big businesses don t start out big. They usually begin with one person, or a group of partners, and little more than vision and determination. Entrepreneurs have big dreams and aspirations and big needs for proper insurance planning. This is why so many financial professionals have built successful businesses of their own by helping small business owners protect their people assets and build powerful benefits programs. These advisers see their production grow naturally as their clients grow their companies. Consider some facts about this market: Size and scope of the market As of 2009 in the U.S., there were nearly six million businesses with one to 99 employees, with a combined payroll of $1.4 trillion. These firms represent 85 percent of all businesses in the U.S. 1 The average value of a small business stood at $675,000 in Various studies of the affluent market, meanwhile, have found that about one-third of the people in this income category are business owners. 1 Established business owners have incomes and assets about onethird higher than the average for the U.S. population, according to research from LIMRA International. 3 Roughly three-fourths of small business owners are in their prime child-rearing and income-producing years and are peaking in their need for life insurance. 4 Unmet needs Only 35 percent of all small businesses have a formal business continuation agreement in case of an owner s premature death. Most companies also have no keyperson life insurance or disability income insurance protection for the owners or other key employees. 5 Many firms that have a formal agreement have no financing mechanism, such as life insurance, in place. This is despite the fact that seven out of 10 businessowners say they have thought about who would run the business in their absence. 5 Trust in adviser; business mindset Typically, three types of professional advisers insurance producers, accountants and attorneys handle both business and personal financial needs for the majority of small business owners. 6 Most owners prefer to work with one trusted insurance adviser for their complex planning needs. 7 Small business owners understand risk management and the role of insurance as an economical means of asset protection. Ohio National: Your one-stop small business resource Ohio National has extensive resources to help you get started in selling to small business owners, or increase your sales success if you are already in that market. This brochure is your introductory guide to the smallbusiness market and everything we offer. It also gives you a brief overview of each sales concept for which we have illustration capability, specimen documents, and other tools and resources. Use this as your key reference guide for Ohio National s approach to the overall small business market. As you get into actual case work with businessowner prospects, you will go through the process of fact gathering, analysis, diagnosis, recommendations, and closing. In that process, you can use the materials and tools described in this guide that are specific to each solution. 1 Small Business Owners: 2009, LIMRA International, James O. Mitchel, Ph.D., CEBS, pages Producer Opportunities: Business Owners Need More Advice on Their Finances, LIMRA International, 2005, James O. Mitchel, Ph.D., CEBS, page 5. 3 Producer Opportunities, page 2. 4 U.S. Small Businesses in 2000 A Dynamic Market, LIMRA International, 2001, Nilufer R. Ahmed, Ph.D., page 4. 5 Small Business Owners: 2009, page 5. 6 How Producers Work the Small Business Market, LIMRA International, 2005, James O. Mitchel, Ph.D., CEBS, page 4. 7 Producer Opportunities, page 6. 1

4 Focused solutions for meeting small business owner objectives Small business owners have many concerns and needs that extend well beyond the scope of this guide or of most insurance practices. Tax, legal, and accounting needs require help from peer professionals in those fields. Insurance professionals like you should focus on areas for which life insurance and annuity products can provide the best solutions. Most small businesses have three fundamental objectives that insurance professionals can address: Protecting the business against the financial hardships of death and disability. Core solutions include: Buy-Sell Planning, for business continuation after the death of a co-owner; Key Person Insurance, to insure against the loss of a key employee; Disability Income Insurance, for protection of owners and key employees incomes in case of disability. Recruiting and retaining key employees. Core solutions include: Employer-Sponsored Retirement Plans for base retirement benefits; Executive Bonus as a simple tool for rewarding key personnel; Split Dollar as a specialized technique for structuring a benefit program; Supplemental Executive Retirement Plan (SERP) for a more comprehensive benefit to attract and retain talented executives and key employees. Creating personal benefit plans for the business owner(s). One effective tool under this objective is the Fully Insured Defined Benefit Pension Plan, also known as the Section 412(e)(3) Plan. The following pages detail these sales concepts, and also list the resources Ohio National offers. Summary brochures For an overall introduction into the sales concepts that work in this marketplace, read these summary brochures, each of which is available in PDF on our producer Web site, ON-Net ( Developing an Advanced Sales Case Adviser Guide (Form 1430) Side-By-Side Business Insurance Plan Comparisons (Form 2415) Executive Fringe Benefits Guide (Form 2416) Family Business Planning Adviser Guide (Form 2470) Did you know million Number of businesses in the U.S. employing one to 10 people $401 billion Total payroll of those businesses 43% Percentage of small business owners total net worth attributable to their business $108,500 Average annual income of small business owners Sources: LIMRA International studies,

5 Comparison of Funding Alternatives Total Payments Total Earnings Loan Sinking fund $278,660 $151,437 Payments $2,786,600 Required $4,287,077 $266,449 $2,329,800 Installment sale $1,514,370 $26,550 $4,099,215 Life insurance $2,664,490 $265,500 $408,462 For illustration purposes only, this comparison assumes the value of the business is the same in 10 years, and time value of money is not reflected. Loan and installment payments are shown going forward at time of death. Contributions to the sinking fund and life insurance premiums show just the payments made during the 10-year period. Comparison applies a 35 percent income tax rate on earnings. Protecting the Business Buy-Sell Planning Planning for ownership transition after death or long-term disability Many small businesses have more than one owner. These co-owners need to plan for how to handle ownership transition and keep the business going after one of them dies or suffers a long-term disability. Without a prearranged plan determining how to value ownership shares and how to finance the sales of the shares, the surviving or healthy coowner(s) may find it difficult to acquire the ownership stake of the deceased or disabled co-owner. Most companies don t survive the loss of a co-owner when no advance plan is in place. Life insurance can provide the funds to redeem ownership shares, and disability income coverage can pay benefits to a disabled co-owner and help pay overhead costs of the business. Buy-Sell Planning Adviser Guide, Form 2412 Buy-Sell Planning Brainshark (on-demand multimedia presentation) ContinuON Income Solutions Disability Income Insurance Marketing Guide, Form 8722 Buy-Sell Client Presentation (PowerPoint with script) Buy-Sell Specimen Documents Buy-Sell Planning Client Guide, Form 2301 Comparison Tables Stock Redemption vs. Cross Purchase, Form 2803 NEW Feature! Illustration Enhancement Customized report generated from illustration software Without a prearranged plan financed effectively through insurance, the surviving or healthy coowner(s) may find it difficult to acquire the ownership stake of the deceased or disabled co-owner. Prepared For: Myrtle Beach Putt Putt Presented By: Cannon, William Date: 01/05/2012 Loan repayment schedule for a $2,000,000 loan at 7% for 10 year(s); assumes interest payments are nondeductible Sinking fund earning 5% after tax; sinking fund contribution made at the beginning of each year Installment sale assumes a 6% interest rate; payments are due at the beginning of the year and interest is nondeductible Life insurance reflects annual premium of $15,005 for a male, age 48, Preferred Nonsmoker and annual premium of $11,545 for a female, age 45, Preferred Nonsmoker 17 3

6 Ohio National Life Assurance Corporation One Financial Way Cincinnati, Ohio Prepared by Ohio National's Authorized Representative William Cannon V-Pro UL Skutch Mitchell Male, Age 52, Preferred Nonsmoker Total Initial Death Benefit: $500,000 Death Benefit Option A Planned Annual Premium: $5, Life Insurance Test: CVAT Protecting the Business Key Person Insurance Protection against the loss of indispensable employees Every successful business has at least one key employee or contributor who is indispensable. In a small company, the only key employees may be the owner or co-owners. In any case, the key employee is so valuable to the business that his or her death would threaten the survival of the firm. A key-employee life policy indemnifies the firm against such a loss, providing liquidity to sustain cash flow, keep accounts current, and cover the expenses of seeking and training a suitable replacement. NEW Feature! Key Person Insurance Adviser Guide, Form 2401 Key Person Insurance Brainshark (ondemand multimedia presentation) Key Person Insurance Client Presentation (PowerPoint with script) Key Person Insurance Specimen Documents Key Person Life Insurance Client Guide, Form 2302 Illustration Enhancement Customized report generated from illustration software Key-Person Life Insurance Illustration GENERAL LEDGER FOR AGENT USE ONLY THIS IS NOT INTENDED TO BE AN ILLUSTRATION AND IT MAY NOT BE USED FOR SOLICITATION Assumed Values Current Values Guaranteed Values Current Charges Current Charges Guaranteed Charges--- Assumed 4.00% in Yrs 1-10 Current 5.00% in Yrs 1-10 End Guaranteed 2.50% 4.75% in Yr 11 and Later 5.75% in Yr 11 and Later of Annual Yr Net Surrender Death Cash Surrender Death Cash Surrender Death Dur Age Year Outlay Value Benefit Value Value Benefit Value Value Benefit , ,000 4, ,000 4, , , ,000 8, ,000 8, , , ,000 12, ,000 12, , , ,000 16, ,000 17, , , ,000 21,127 3, ,000 21,807 3, , , ,000 25,603 8, ,000 26,572 9, , , ,000 30,159 13, ,000 31,477 14, , , ,000 34,790 18, ,000 36,520 19, , , ,000 39,582 23, ,000 41,791 25, , , ,000 44,471 28, ,000 47,233 31, , , ,435 36, ,000 53,852 40, , , ,574 44, ,000 60,747 48, , , ,900 52, ,000 67,937 57, , , ,546 61, ,000 75,566 67, , , ,333 69, ,000 83,464 76, , , ,248 78, ,000 91,632 86, , , ,278 86, , ,066 96, , , ,406 95, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 Disability Income Insurance Protection for owners and key employees income if disabled This is the disability income equivalent of key person life insurance. Disability actually poses a greater risk, statistically, than death for people at most ages. A disabling illness or injury to a small business owner, especially when he or she is the sole key person, can cripple the firm financially. In addition, small firms may have no access to a group long-term disability plan that many larger employers purchase as an economical way to provide some protection. Prepared For: Skutch Mitchell Presented By: William Cannon Date: 01/05/2012 ContinuON Income Solutions Disability Income Insurance Marketing Guide, Form , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,152 58, , , , , , , , , , , , , , , , ,000 Page 1 of 3 Program Version Date 12/01/2011 This is not a life insurance policy or contract Ohio National Financial Services, Inc. 01/05/2012 9:03 AM ContinuON Income Solutions Summary of Coverage, Form 8723 What Is Your Most Valuable Asset (client brochure), Form 8736 Three Risks, Three Futures... and Three Solutions (client brochure), Form

7 Recruiting & Retaining Key Employees Employer-Sponsored Retirement Plans Providing a key benefit to attract employees A very important baseline employee benefit is a retirement plan. These plans take many forms depending on the type and size of the sponsoring organization (typically either a for-profit business or a non-profit organization or governmental entity). In recent years, especially during a recessionary economy, some employers have curtailed contributions to their retirement plans. Nevertheless, employees have come to expect these programs, so much so that an employer who lacks a retirement plan may have two strikes against it in the competition for attracting and keeping talented employees and key executives. Ohio National offers group variable annuity products and plan administration services for the group retirement market of small- to mid-size employers, those using 401(k) and profit-sharing plans. We also have individual fixed and variable annuity products as funding vehicles for Simplified Employee Pension (SEP) and SIMPLE IRA plans favored by smaller employers. Retirement Plans Wholesaler Territory Map, Form 3866 Retirement Plans Overview, Form 3640 Retirement Plans ONcore Advantage Product Matrix, Form 3775 Retirement Plans Request for Proposal, Form 3202 ONcore Advantage Plan Sponsor Guide, Form 3717 Pension Fund Chart/Portfolio Options by Category, Form 3622-Pen Portfolio Profiles (quarterly), Form 8528 Monthly Performance Reports Group Variable Annuity SEP Employee Guide, Form 1440 SEP-IRA Employer Guide, Form 1441 Comparison of Tax-Favored Retirement Plans, Form 1789 SIMPLE Employee Guide, Form 5951 SIMPLE Employer Guide, Form 5950 A company lacking a retirement plan may have two strikes against it in the competition for attracting and keeping talented employees and key executives. 5

8 Recruiting & Retaining Key Employees Executive Bonus Funding a life insurance policy for key employees This is a popular technique for attracting and rewarding key employees, largely because of its relative simplicity. The employer establishes a life insurance policy on a key employee as a fringe benefit, and pays the premiums in the form of a bonus to the employee. The bonus is a tax-deductible expense for the business (so long as the bonus doesn t exceed reasonable compensation guidelines under federal tax law) and is tax-reportable income for the key employee. The key employee usually holds all rights in the policy, which can make this a valuable personal asset. Business owners can install bonus plans for themselves and be very selective in using this type of benefit; there are no federal non-discrimination regulations to worry about, as there are for qualified plans. The main requirement for providing an executive bonus plan is sufficient, consistent cash flow to pay the bonuses for the policy premiums. Executive Bonus Plan Adviser Guide, Form 1470 Executive Bonus Plan Brainshark (ondemand multimedia presentation) Executive Bonus Plan Client Presentation (PowerPoint with script) Executive Bonus Specimen Documents Executive Bonus Plan Client Guide, form 2300 Illustration Enhancement Customized report generated from illustration software Jenny Anderson NEW Feature! Accumulation Phase Executive Double-Bonus Using Prestige Max Employer pays annual premium $10, a Employer pays additional bonus $3, Split Dollar Adding flexibility to business solutions Split dollar provides business owners with flexibility when funding executive benefits. Rather than having the business pay all premiums, the premium expense can be split between the company and the employee. The ultimate death benefit payout (or policy rollout at the employee s retirement) can be split as well, to enable the company to recover its costs (hence the name, split dollar). Either the company or the employee can own the policy, with the two arrangements known as endorsement and collateral assignment, respectively. Because of the variety of possible arrangements, a written agreement normally governs the use of this technique by an employer (another difference from executive bonus). NEW Feature! Prepared For: Jenny Anderson Presented By: William Cannon Date: 01/05/2012 Split Dollar Adviser Guide, Form 1437 Split Dollar Life Insurance Brainshark (ondemand multimedia presentation) Split Dollar Life Insurance Client Presentation (PowerPoint with script) Split Dollar Specimen Documents Split Dollar Worksheet Economic Benefit Calculation, Form to cover executive's taxes Executive pays income tax $3, Employer receives tax deduction $13, Executive has access to cash value Year 10 surrender value $107, Retirement surrender value $441, Beneficiaries protected Year 10 death benefit $484, Retirement death benefit $895, Split Dollar Client Guide, Form 2305 Illustration Enhancement Customized report generated from illustration software

9 Recruiting & Retaining Key Employees Supplemental Executive Retirement Plan (SERP) A powerful incentive in retaining executives The Supplemental Executive Retirement Plan (SERP) is one of the most common examples of a nonqualified benefit plan. As the name indicates, it is meant to supplement the regular retirement benefits of a key executive, such as income from assets accumulated in a 401(k) or other qualified plan. The supplemental benefits are specified in a contract or agreement so that the key executive has an incentive to stay with the firm until retirement, when the benefit payout begins. These plans have relatively few federal compliance requirements, but must be structured carefully for their taxation impact on both the employer and employee. Companies usually purchase life insurance as an informal SERP funding vehicle because of its long-term tax advantages. In a typical SERP, the employer is the owner, premium payor, and beneficiary of the life insurance policy. Supplemental Executive Retirement Plan Adviser Guide, Form 1488 Supplemental Executive Retirement Plan Brainshark (on-demand multimedia presentation) Supplemental Executive Retirement Plan Presentation (PowerPoint with script) Supplemental Executive Retirement Plan Specimen Documents Supplemental Executive Retirement Plan Client Guide, Form 2303 Illustration Enhancement Customized report generated from illustration software NEW Feature! Benefits are specified in a contract or agreement so that the key executive has an incentive to stay with the firm until retirement, when the benefit payout begins. 7

10 Creating Personal Benefit Plans Fully Insured Defined Benefit Pension Plan [Section 412(e)(3)] An effective method of funding retirement for highly-paid individuals For a secure, reliable income in retirement, the defined benefit pension plan is the ideal vehicle. Larger employers have avoided defined benefit plans because of their expense, but a smaller employer with adequate cash flow and retained earnings will find the 412(e)(3) plan an attractive concept for setting up the owner(s) with enhanced retirement income. In a typical small business, the owner receives much higher compensation than the employees. Federal requirements for most qualified plans (including 401(k) plans), however, limit individual contributions to such an extent that business owners can t put away enough money to create a retirement income on par with their standard of living. The contribution limits effectively discriminate against the business owner. The 412(e)(3) plan, formerly known as the 412(i), allows for much higher contributions because the funding is determined by a benefit formula tied to recent compensation. Thus, the best candidates for this type of plan are companies with few employees and an owner(s) who is considerably older, and earning considerably more, than the rank and file. Most 412(e)(3) plans are funded through a fixed annuity contract (hence the fully insured description) or a combination of a fixed annuity and permanent life insurance. Plan Marketing Guide, Form 3401 Plan Presentation (PowerPoint with script) Plan Request for Proposal, Form 3405 Plan Administrative Fees, Form 3408 Plan Service Agreement, Form 3404 Plan Sample Proposal Plan Prospecting Letters Comparison of Tax-Favored Retirement Plans, Form 1789 Plan TPA List Plan Client Guide, Form 3403 Plan Prestige Xcel Profile Sheet, Form 3409 Plan Prime II Profile Sheet, Form 3402 The 412(e)(3) plan allows for much higher contributions because the funding is determined by a benefit formula tied to recent compensation. 8

11 Additional marketing resources Advanced Markets Online (AMO) is designed to provide the essential technical information you need to work in the advanced markets. AMO covers five major areas: Taxation, Estate Planning, Business Insurance, Retirement Plans, and Charitable Giving. These broad groupings are divided into specific advanced market topics that you can access quickly from the AMO home screen or related sections of the library. Each topical area tells you: what the concept is, how it works, what the tax consequences are, key advantages and disadvantages, and planning and funding considerations. Advanced Markets Online offers a high degree of speed, convenience, accuracy and interactivity. And it s carefully designed to meet a wide variety of user needs: To find a specific fact: AMO lets users find facts quickly and easily. For memory refreshers: AMO lets users refresh their memories of some fact or concept that may have become cloudy to them. To browse: AMO allows users to browse through a network of integrated knowledge, customizing their own path as appropriate to their specific concern. In short, Advanced Markets Online offers a comprehensive, user-friendly library of information you can use before: making a phone call to a client or client s adviser, conducting an interview, attending a meeting, or preparing a proposal or presentation. To access AMO... go to ON-Net at: ohionational.com > Quick Hits > Advanced Sales > Advanced Markets Online (AMO) AMO Salesmaker AMO Salesmaker is the client-presentation companion to Advanced Markets Online. It comprises a set of ready-to-use client literature on each distinct sales concept covered in the AMO training material. The client material includes a clear, convincing explanation of the concept and what needs it addresses; a summary of the concept as a solution to the needs; and graphic illustrations of how each concept works. To access AMO Salesmaker... go to ON-Net at: > Products & Marketing > Marketing Resources > Advanced Sales > AMO Salesmaker For more assistance: Advanced Sales Team

12 The Ohio National Life Insurance Company Ohio National Life Assurance Corporation One Financial Way Cincinnati, Ohio Post Office Box 237 Cincinnati, Ohio Telephone: Form 2316 Rev Ohio National Financial Services, Inc. Variable annuities are sold by prospectuses, which contain more complete information including fees, contingent deferred sales charges and other costs that apply. Clients should read the product and fund prospectuses carefully before investing or sending money. Investors should consider the investment objectives, strategies, risk factors, charges and expenses of the underlying variable portfolios carefully before investing. The fund prospectus contains this and other information about the underlying variable portfolios. Early withdrawals or surrenders may be subject to surrender charges (contingent deferred sales charges). Withdrawals may also be subject to ordinary income tax, and, if taken prior, to age 59½, a 10 percent federal tax penalty may apply. Withdrawals may reduce the death benefit, cash surrender value and any living benefit amount. Guarantees are based upon the claims-paying ability of The Ohio National Life Insurance Company. Guarantees do not apply to the investment performance or account value of the underlying variable portfolios. Life insurance and annuities are issued by The Ohio National Life Insurance Company and Ohio National Life Assurance Corporation. Product, product features and rider availability vary by state. Issuers not licensed to conduct business and products not distributed in Alaska, Hawaii or New York. Disability income insurance is issued by Ohio National Life Assurance Corporation. Disability income insurance is not available in California. Tracing its corporate origins to 1909, Ohio National markets a variety of insurance and financial products in 47 states (all except Alaska, Hawaii and New York), the District of Columbia and Puerto Rico, with subsidiary operations in Santiago, Chile. We are committed to building long-term relationships with our customers and to providing them with solutions as their needs change over time. for representative use ONLY. NOT FOR USE WITH the General PUBLIC.