“A great opportunity” for advisors

Business owners have a unique set of insurance needs. Like most clients, they look to insurance as a tool to provide for their loved ones in the event of an illness, disability or death. But because many business owners have the majority of their assets tied up in their business, insurance can play a critical role in providing the liquidity necessary to keep their companies afloat.

“Most business owners that we deal with have anywhere from 70% to 90% of their assets tied up in their businesses,” says Ted Polci, insurance advisor and partner with First York Insurance Agency Ltd. in Toronto. “Liquidity is the big thing.”

Serving business owners can be a challenge. In addition to needing a thorough understanding of basic life and health insurance products, you also must familiarize yourself with the various tools that business owners use to protect their business in the event of the death of one of the business’s owners, such as key-person insurance and buy/sell agreements.

Business owners also face special tax considerations, which can influence the types of insurance strategies that are appropriate for these clients. If you focus on this market, says Mike Deboski, insurance advisor and owner of Deboski & Co. in Edmonton, you should consider taking courses to educate yourself on these issues. For example, under the Income Tax Act, a business owner who dies is deemed to have disposed of shares in the company at fair market value, which could leave his or her estate with a hefty capital-gains tax bill. Insurance can be used to defray this tax liability.

“It’s important to understand the complex tax implications that [business owners] face,” says Deboski, who works exclusively with business owners and professionals.

Furthermore, since tax rules change fairly often, you would have to monitor the tax arena continually. Polci recommends attending courses and seminars on a regular basis to keep up with developments in the tax realm.

“You really have to work at it,” Polci says. He recommends joining such professional associations as the Conference for Advanced Life Underwriting and the Society of Trust and Estate Practitioners to help you stay on top of policy changes affecting business-owner clients.

Working with this market also requires that you be in tune with business owners’ way of thinking. These clients tend to be accustomed to taking significant financial risks, and their priorities often are quite different from those of other clients. Having a background in business education and some real-world business experience can help in relating to these clients, Polci says. As co-owner of his firm, he understands the issues his clients face: “I appreciate the risks that they take, and the worries that they have.”

You also should be prepared to spend more time with these clients than you typically would with an individual client because of the more complex planning and tax issues. And the insurance sales process often involves multiple meetings, including meetings with your clients’ accountants, lawyers and other consultants.

“It’s a team approach,” Polci says. “The other professional advisors are always involved.”

The duration of the sales procedure can be challenging in your first few years in this niche, Deboski says, when you are building up your base of clients and don’t yet have a steady income.

Once you have established your base of clients in this market, however, your book of business can grow quickly through referrals. Advisors in this market recommend developing close relationships with the other professional advisors who serve business owners in order to generate referrals.

“Pretty much all of our [new] business,” Polci says, “comes from [referrals from] law firms and accounting firms.”

This is the second installment in a three-part series on developing a specialized insurance practice. Next: Focusing on a profession

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