Small-business prospecting guide

Allianz Life Insurance Company of North America Small-business prospecting guide Making the most of this untapped market P For financial professional use only. Not for use with the public. Small-Business Life Insurance Kit M-536 Page of 2

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Small-business prospecting guide Grow your business by working with small-business owners. Life insurance provides a valuable death benefit but that s just the beginning of the advantages it can provide your small-business-owner clients. For these clients, life insurance can be an important part of their overall business strategy which is why targeting these small-business owners should be an important part of your business strategy. Fixed index life insurance (FIUL) can provide death benefit protection, which can help your clients address financial concerns such as income replacement, final expenses, estate taxes, and debt repayment. According to LIMRA s 200 Behind the Eight Ball : More than half of small businesses do not offer any type of executive benefits. Of these, two-thirds have not been approached by a financial professional in the past year. Small-business owners most likely have families, which translates into a number of financial and protections needs. According to LIMRA s 202 Small World: Trends in the U.S. Small Business Market, the top reasons small-business owners give to own business life insurance are: Reimburse the company for the loss of a key employee Repay business related loans business continuation Estate liquidity for the owner s family To fund a buy-sell agreement In the following pages, we ll walk you through the process in four easy steps. We ll also show you some tools that can help you ask the right questions so you get the information you need. As you can see, the small-business-owner market holds great potential for building your business, creating a competitive edge and distinguishing yourself from other financial professionals. Your existing book of business may have hidden opportunities that you ve so far overlooked. You can market employee and executive benefits to these businesses, as well as financial products and services to the affluent owners. Many small-business owners are relying on selling their business to provide funds for retirement a risky strategy, since there may not be a buyer when they are ready to sell. Fixed index universal life insurance (FIUL) offers death benefit protection and has cash value accumulation potential that can be accessed via policy loans to provide supplemental income in retirement, tax benefits, and even business-continuity options. Keep in mind that life insurance is an underwritten product and is contingent on the health qualification of the insured and, in some cases, financial qualification. Successful financial professionals know the importance of having a steady stream of appointments with clients and prospects. The prospecting tactics here can broaden your reach and make your success more likely. Small businesses have a need for the SOLUTIONS THAT LIFE INSURANCE CAN PROVIDE. Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax Page professional. 3 2

Small-business prospecting guide Step : Getting the appointment Start by contacting clients who you think may be underinsured, have the highest net worth, or own a business. Before you can offer your clients THE RIGHT SOLUTIONS, you have to get in front of THE RIGHT CLIENTS. Many of these clients don t realize how life insurance can be a huge benefit to their business. The sample prospecting letters and client mailers we ve included in this kit can help you get in front of prospective clients and start the conversation. Here are a few groups you may consider contacting: Kiwanis International (www.kiwanis.org) Credit unions (www.creditunion.coop) Lions Clubs International (www.lionsclubs.org) Rotary International Organization (www.rotary.org) Chamber of Commerce (www.chamberofcommerce.com) College/university alumni associations Church/religious associations Partner with other professionals. M-539-A,B,D MLIF-053 MLIF-036 Try sending out only a few each week, and follow up with a phone call. Then, use the client-approved presentation in this kit to introduce them to the many uses of life insurance for attracting and retaining employees and ensuring business continuity. Contact other professionals (e.g., attorney, accountant, CPA, property and casualty insurance agent, annuity agent, bank trust officer, etc.) to establish a mutually beneficial relationship, partnering with them to offer a broader range of financial solutions to their clients. Start by contacting your own CPA, attorney, or clients to discuss referral opportunities. They could also introduce you to other professionals they know. Network with affinity groups. Consider setting aside a few hours each week to drop in on small businesses and introduce yourself to their owners. You may also benefit from joining your community s chamber of commerce or attending smallbusiness startup meetings, if any are held in your area. In addition, consider scheduling some group presentations. If you already work with any affinity groups, offer an informal seminar for fellow members. We ve prepared a client-approved presentation you can use with individual clients or with groups. Joining a local chamber of commerce or financial services association may be a good way to meet other financial industry professionals. The success of your business depends on staying in front of your clients and getting in front of quality prospects. Whichever tactics you choose, apply them consistently. 2 Page 4 of 2

Calling scripts For even the most seasoned financial professionals, cold-calling can be awkward. These phone scripts can help make the process less intimidating. Practice them several times until you can deliver these openings smoothly and comfortably. Calling an existing client: Hello (client name), this is your agent, (agent name). Is this a good time to talk? (If the client is busy, ask, When is a better time to talk? ) I m calling today to discuss how your life insurance can provide an income-tax-free death benefit. It can provide the opportunity for cash value accumulation that you can access via policy loans for various purposes, like supplementing your retirement income. When would be a good time to meet? Calling an existing client who owns a business: Hello (client name), this is your agent, (agent name). Is this a good time to talk? (If the client is busy, ask, When is a better time to talk? ) I m calling today to show you how life insurance can help protect your business from financial loss in case of a key contributor s death. When would be a good time to meet? Calling a prospective client: Hello (prospect name). This is (your name) calling from (name of your agency). Have I reached you at a good time? (If no, ask, When is a better time to call? ) I m calling to tell you how life insurance provides an incometax-free death benefit. It can provide the opportunity for cash value accumulation that you can access via policy loans for various purposes, like supplementing your retirement income. I d like to offer you a no-obligation consultation. It will take only a few minutes, and could potentially benefit you. When would be a good time for me to stop by? Calling a business professional: Hello, (business professional name). This is (your name) calling from (name of your agency). Have I reached you at a good time? (If no, ask, When is a better time to call? ) As you re aware, many of your clients either have life insurance, or have a need for it. I would like to show you how life insurance can provide death benefit protection and the opportunity for cash value accumulation that can be accessed via policy loans for various purposes, like helping to supplement retirement income. I d like to tell you more about what I can offer to you or your clients. When might we meet to discuss it? Leaving a voicemail for an existing client: Hi (client name). This is your insurance agent (agent name). Sorry I missed you. I am calling to discuss how your life insurance can provide an income-tax-free death benefit, and provide the opportunity for cash value accumulation that you can access via policy loans for various purposes, like supplementing your retirement income. Please give me a call back at XXX.XXXX. I look forward to hearing from you soon. Leaving a voicemail for a prospective client: Hello (client name), this is (agent name), an insurance agent in (name of city). Sorry I missed you. I m calling to discuss how your life insurance can provide an incometax-free death benefit. It can provide the opportunity for cash value accumulation that you can access via policy loans for various purposes, like supplementing your retirement income. Please call me at XXX.XXXX to learn more. Thank you for your time, and we ll talk soon. Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax professional. 3 Page 5 of 2

Small-business prospecting guide Step 2: Fact-finding How well do you know your CLIENTS GOALS, needs, and concerns? Helping small-business owners to understand their needs. Small-business owners may not realize their need for life insurance and how it can play a pivotal role in their business continuation strategy. Uncovering these wants and needs often requires asking many questions. Start by learning some key information about their business operations: Tell me about your business. How many owners are there? How many employees do you have? What type of benefits do you offer? How do you attract, reward and retain key employees? What will happen to the business if a key employee retires or dies? If your clients mention any of the following among their goals or concerns, fixed index universal life insurance could play a key role in providing a solution: Death benefit protection Business continuity Cash value accumulation potential Supplemental income in retirement Tax-favored accumulation potential Income-tax-free loans on any available cash value Covering additional insureds on one policy After you ve talked to your clients about their needs and goals, use the Business Financial Inventory worksheet (M-52) to get a closer look at their financial situation. If you aren t sure of the legal classification of the business they own, see the Business entity reference guide (M-546) in this kit. Next, broaden the discussion to bigger long-term questions: What are your primary financial goals? Do you have any concerns about the ability of your overall financial strategy to meet these goals? If something happened to you, would your business partners want your spouse as their business partner? Do you have a business continuation plan in place? How is it funded? When you retire, what do you plan to do with the business? Where will your retirement income come from? Are you using life insurance to help support any of these goals? M-52 M-546 When you ve completed the financial backgrounding about your clients and their business, you can begin to evaluate the data. 4 Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax professional. Page 6 of 2

Step 3: Identifying needs In the previous step, you discovered your clients goals, needs, and concerns, and whether they had any life insurance coverage. Now you ll find out whether fixed index universal life insurance could be an effective part of their overall financial strategy. Four key needs that life insurance can answer for small-business owners Business planning solutions: Life insurance can play a valuable role in helping clients reward and retain employees, reduce or delay their tax liability, and protect the future of their business. Accumulation: Fixed index universal life insurance policies offer accumulation potential by allowing their cash value to earn interest based on the positive changes in an external index. Client can access any available cash value through policy loans. Supplemental income in retirement: Do your clients want an extra source of income in retirement? One option may be to draw supplemental income from their life insurance policy s available cash value. Some of your clients may even choose to pay an additional premium to their policy with the idea of maximizing accumulation potential and accessing available cash value in retirement through policy loans. Tax benefits: Life insurance policies can offer several tax advantages, such as an income tax-free death benefit for beneficiaries. Clients can also access any available cash value income-tax-free through policy loans. Their cash value accumulates tax-deferred, which may help it build. Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax professional. 5 Page 7 of 2

Small-business prospecting guide Step 4: Offering business planning solutions FOR MORE DETAILED INFORMATION about the plans we describe here, see the client handouts in your kit. Executive bonus plans These plans (sometimes called Section 62 plans) allow clients to pay a bonus to any employee(s) of their choosing. The bonus can then be used to fund life insurance coverage for the employee and their family, and it can serve as a tax deduction for the business if your client writes it off as employee compensation. Executive bonus plans are simple to set up and administer and appropriate for almost all types of companies, including sole proprietorships, S and C corporations, partnerships, and limited liability companies. Allianz Life Insurance Company of North America (Allianz) life insurance products, like most life insurance policies, require health underwriting and, in some cases, financial underwriting. Restricted executive bonus plans (REBA) A restricted executive bonus plan (REBA) can be another attractive way to attract and retain key employees. This type of special benefit can help key employees build loyalty to the business without the complexities of other types of plans. A REBA provides a key employee with a bonus that s used to fund a life insurance policy. This life insurance policy provides a death benefit to the employee s family if the employee dies while the policy is in force. When special restrictions are included that limit the employee s access to the policy s available cash value via policy loans until an agreed-upon time, the REBA can be a powerful incentive for an employee to remain with the company. Nonqualified deferred compensation plans WITH A VESTING SCHEDULE, these plans can be an excellent employee retention tool. To recruit and retain valuable employees, employers often need to offer more than just a basic benefits package. At the same time, employees are looking for ways to maintain their standard of living in retirement. Nonqualified deferred compensation plans (NQDC) can address both of these needs, by allowing employees to set aside a portion of their income with the expectation of receiving a payment or benefits at some point down the road. Life insurance can be appropriate for this strategy because of the death benefit protection it provides along with cash value accumulation potential that can be accessed via policy loans for future needs. 2 When a vesting schedule applies, these plans can be an excellent employee retention tool. Employees will be required to remain with the business for the specified time period to realize the payment and/or benefit offered by the plan. Any costs associated with the maintenance of these plans are generally taxdeductible for your client s business, as are any benefit payments your client makes to employees. NQDCs are most appropriate for S and C corporations. 6 For more information on the tax implications of contributions to or distributions from this or any other employee benefit plan, refer your clients to their attorney or tax advisor. 2 Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax professional. Fixed index life insurance (FIUL) can provide death benefit protection, which can help your clients address financial concerns such as income replacement, final expenses, estate taxes, and debt Page repayment. 8 of 2

Key person life insurance This type of life insurance designed to protect the business from the risk and costs of losing a key employee can be one of the best ways of helping clients ensure the continuity of their business. Key person life insurance can be tailored for the contingencies that are of greatest concern. The insurance coverage will help protect the value of their business, and can help supply needed funds to meet financial obligations and hire a replacement. It can be a cost-effective solution for your clients because they are paying only for the cost of the insurance, and the death benefit proceeds are exempt from regular income tax, but may be subject to Alternative Minimum Tax. Key person life insurance policies may be suitable for sole proprietorships, partnerships, and all types of companies, including S and C corporations and limited liability corporations. Help protect the value of their business and lessen the impact of employee loss. For more information on the tax implications of contributions to or distributions from this or any other employee benefit plan, refer your clients to their attorney or tax advisor. 7 Page 9 of 2

Small-business prospecting guide Buy-sell agreements funded with life insurance If your client shares ownership of a business, it s likely that at some point one of the owners will have to buy the other(s) out. Buy-sell agreements can help the remaining owners keep control of the business, transfer leadership in an orderly fashion, and provide stability during this period for customers, employees, creditors, and investors. Buy-sell agreements funded with life insurance are flexible because they offer your clients options for continuing their business in a variety of situations. They also create a binding agreement between the buyer and the seller, and lock in a purchase/sale price. Cross-purchase agreements require each business owner to buy a life insurance policy on the other partners. Upon the death of an owner, the remaining partners receive the death benefit from the life insurance policy(ies). Cross-purchase buy-sell agreements may be suitable for smaller companies, including partnerships, S and C corporations, and limited liability companies. Entity purchase agreements may be more appropriate for larger companies that have more partners. Here, the business purchases only one policy per owner. Upon death of an owner, the business collects the death benefit from the policy and uses it to buy the owner out by making a liquidation payment to his or her estate. Entity purchase buy-sell agreements are appropriate for larger S and C corporations and for limited liability companies. Partnership buy-sell agreements provide a solution for the retirement or death of any owners. Most traditional buy-sell arrangements provide for the purchase of the business only upon the owner s death. When properly established, a partnership buysell agreement can provide cash value accumulation potential via policy loans to an owner upon retirement or a death benefit to survivors upon an owner s death. Please note that the life insurance used for the buy-sell arrangement must be owned by a partnership, or LLC that s taxed as a partnership. If your client s business is an S or C corporation, your client should consult with their own legal and tax advisors for guidance in setting up this separate business entity. One-way buy-sell agreements funded with life insurance. If your clients are sole owners of a business, they may at some point want to establish a succession plan for their business. Fixed index universal life insurance, with the death benefit protection it provides, offers a unique opportunity to formalize their business continuation strategy. This is made possible with a one-way buy-sell agreement a legal contract between the owner of a closely held business and a future buyer. In this situation the business owner determines a prospective buyer, which could include a key employee, 8 Policy loans will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Your clients should consult a tax professional. Page 0 of 2

friendly competitor, relative, or other party. The business owner and prospective buyer establish and agree upon the terms of the oneway buy-sell, including the price or formula of the business valuation. The buyer purchases life insurance on the life of the current owner and is the owner and beneficiary of the policy. Upon the death of the business owner, the buyer then uses the life insurance death benefit or the available cash value accumulation to purchase the business according to the buy-sell agreement, thereby establishing a smooth transition of the business at the point of a triggering event, such as the owner s death, retirement, or disability. Small-business owners present a big opportunity for you to grow your practice. For more help and sales tips, call the Life Case Design Team at 800.950.7372 (press for Sales Support, then 2 for Life). For more information on the tax implications of contributions to or distributions from this or any other employee benefit plan, refer your clients to their attorney or tax advisor. An employer-owned life insurance policy may be subject to the requirements of Internal Revenue Code 0(j) in order to obtain an income-tax-free death benefit. In general those rules require that before the policy is issued, the employer must provide the insured with a written notice of the life insurance and obtain a written consent from the insured. Consult with an attorney for application of those rules to a specific situation. This piece is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give legal or tax advice. Encourage your clients to consult their tax advisor or attorney. FIUL is an insurance product and not an investment. This product does not participate directly in the market or the index. It is not possible to invest directly in an index. Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Not FDIC insured May lose value No bank or credit union guarantee Not a deposit Not insured by any federal government agency or NCUA/NCUSIF Page of 2

True to our promises so you can be true to yours. A leading provider of annuities and life insurance, Allianz Life Insurance Company of North America (Allianz) bases each decision on a philosophy of being true: True to our strength as an important part of a leading global financial organization. True to our passion for making wise investment decisions. And true to the people we serve, each and every day. Through a line of innovative products and a network of trusted financial professionals, and with over 2.2 million contracts issued, Allianz helps millions of people as they seek to achieve their financial and retirement goals. Founded in 896, Allianz is proud to play a vital role in the success of our global parent, Allianz SE, one of the world s largest financial services companies. While we pride ourselves on our financial strength, we re made of much more than our balance sheet. We believe in making a difference with our clients by being true to our commitments and keeping our promises. People rely on Allianz today and count on us for tomorrow when they need us most. Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. www.allianzlife.com Products are issued by: Allianz Life Insurance Company of North America 570 Golden Hills Drive Minneapolis, MN 5546-297 800.624.097 Product and feature availability may vary by state. (R-/202) Page 2 of 2