By Graeme Lindsay
What is one of the most common forms of business structure? The sole proprietorship. We spend time marketing to corporations and partnerships, but overlook this large group of business owners right in our own neighborhoods. What have we done for these people? We have dealt with them for their personal or family life and health insurance needs only. What we haven’t thought about are the business insurance opportunities. So how can we provide value to them?
Well, if you accept the economic principle that any income stream has a capital value and, conversely, any capital sum has an equivalent income earning value, then the income that the sole proprietor generates from his business has a capital value. The death (or total permanent disability) of the sole proprietor will—if the business is simply closed down or is sold on the open market—result in a significant shrinkage in the assets of the deceased’s family. A very simple way for us to add value is to offer to insure the potential shrinkage in asset value.
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A very simple way for us to add value is simply to offer to insure the potential shrinkage in asset value. |
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To do that, I use a simple technique I learned from one of the most profound thinkers I have ever met in our business, 50-year MDRT member Raymond F. Tripplett, CLU, of San Jose, Calif. It allows me to communicate the premiums for our products in terms that our prospects are familiar with. Let me illustrate:
Mr Prospect, I’d like you to forget for a moment that I am in the life insurance business, and imagine, if you will, that I am here representing your bank. The bank has sent me here to see you today to tell you about a new department and service that we’ve just established in our head office. We call it the Standby Loans Department. We’ve created this new department to help business owners like you plan for unforeseen events that inevitably do happen. The bank proposes to establish Standby Loan facilities for our best business owner clients, so that when one of these unforeseen events occurs, you would not be caught short of cash.
Now, we recognize that one of these unforeseen events might well be your death, Mr. Business Owner. And the bank also recognizes that if you were to die at an inopportune time, your family would inevitably lose money on the sale of the business. So the bank wants to set up an arrangement whereby we will have a Standby Loan available to your family to compensate them for that loss in asset value.
Now Mr. Business Owner, as with all other bank services, we have to charge a fee for this service, too. The fee for the Standby Loan at your age is less than you normally pay for a credit card transaction. You see, if you make a sale to one of your customers, the bank charges you 2.5 percent or 3 percent for the privilege of having the proceeds of this sale deposited in your account immediately. And this is 2.5 percent or 3 percent of every sale. Now for our Standby Loan facility, the bank charges only 0.5 percent or maybe up to 2 percent of the Standby Loan per year.
Stepping outside the conversation for a moment, here is the magic that Tripplett taught me all those years ago. If we communicate the premium as a percentage of the face amount, rather than in dollars per thousand, prospects will understand us a lot better. They’re used to dealing in percentages; they do not really understand the “dollars per thousand” language that we speak. Clearly, you would substitute the equivalent percentage for the premium of the policy you recommend.
Stepping back into the conversation with the prospect:
Further, Mr. Business Owner, I need to tell you about the other terms of this Standby Loan arrangement. This product of this facility differs slightly from the normal bank loan. You see, while a normal bank loan must be repaid, and always incurs interest, if you meet certain criteria, this loan neither requires the payment of interest nor does it need to be repaid. And you might ask, what are these criteria? Well, there is really only one—you have to be dead! Let’s get this straight. When you die, the bank advances the Standby Loan to your family, and if you are dead, they neither have to pay interest nor repay the principal of the loan.
I have used this concept many times to explain how life insurance works in terms that prospects understand. Prospects are used to banks, they know the banks charge fees for services, and when they compare the premium of 0.5 percent to 2 percent, say with the interest the banks normally charge for loans, insurance quickly becomes a very attractive alternative.
This is an excerpt of a speech given at the 2006 MDRT annual meeting. Used with permission. All rights reserved.
Graeme Lindsay is a 34-year member of MDRT and was president of Life Underwriters Association of New Zealand. He is the principal of Strategy Financial Services Ltd., and can be reached at graeme@strategy-fin.co.nz.
February 2008
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