DI2502 Small Business Marketing Guide

Document Sample
DI2502 Small Business Marketing Guide Powered By Docstoc
					DISABILITY INCOME INSURANCE




Main Street Marketing Guide
Selling Disability Income Insurance to
Small Business Owners




                                              FOR PRODUCER USE ONLY.
                                         NOT FOR USE WITH THE PUBLIC.

                                                              INVEST

                                                              INSURE

                                                              RETIRE
Table of Contents

Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Small Business Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Small Business Disability Income Insurance Solutions. . . . . . . . . . 9
       Protecting the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

               • BOE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

               • Buy-Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

               • Qualified Sick Pay Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

               • Personal Business Owner Income . . . . . . . . . . . . . . . . . . . . . . . 14

       Retaining Key Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

       Controlling Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

       Understanding the Tax Implications of Small Business . . . . . . . . . . . . . 21

Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The MassMutual Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
About MassMutual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28




           FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                      1
                                                                                         W ELCOME



           Welcome
           The small business sector represents one of the most promising markets for
           disability income insurance. These small businesses contribute 75% of all
           new jobs in the country and are responsible for 51% of private Gross
           National Product, thus making prospects for future growth extremely
           encouraging.1


           Although small business is a growing business segment, it has its
           challenges. One issue for small business owners is finding and retaining
           qualified workers.2 Along with employee compensation in the war for
           talent, a key factor is benefits offered to employees. This means the needs
           of the small business are diverse. Not only does the business owner have
           personal and business insurance needs, but his or her employees also have
           personal insurance needs.


           This provides an excellent opportunity for the insurance professional. Not
           only can you help a small business owner with personal insurance needs,
           but also you can help the business owner protect his or her business,
           including the employees. But this requires an understanding of the small
           business market. This guide is designed to provide a look at the small
           business owner and his or her unique needs and how disability income
           insurance from Massachusetts Mutual Life Insurance Company
           (MassMutual) can help meet those needs.


           Entrepreneurial spirit and the drive to succeed help make the small
           business owner successful. You, too, can be successful in your practice
           by serving the needs of this market.




           1 U.S. Small Business Administration, Office of Advocacy,
             August, 2001
           2 National Small Business United and Arthur Andersen, 2001
             Survey of Small and Mid-sized Businesses, Trends for 2000

FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                 3
S MALL B USINESS O PPORTUNITY



                                Small Business Opportunity
                                Your success in the small business market begins with understanding the
                                small business environment and the needs of these employers. This is a
                                highly desirable market for producers offering disability income insurance,
                                due to several key factors: expanding, underpenetrated market, well-
                                established and thriving business concerns and desirable product mix
                                well-suited to the small business owner profile. The key to success in this
                                market is truly understanding what makes it work, what the needs are, and
                                providing the products and services to meet those needs.

                                A Growing Sector
                                The number of businesses with two to nine employees has grown
                                substantially in recent years. This market has been a growing market
                                for group life, health and retirement benefits. These businesses are most
                                often stable or expanding, the majority have been in business for 10 years,
                                and half report gross revenues of $1 million or more. Growth in the
                                number of businesses offering employee benefits has increased
                                significantly. In fact, retaining and recruiting good employees are the
                                top reasons why these small employers have added retirement benefits
                                over the past few years.3

                                Often Overlooked Market
                                Although nearly half of all businesses are defined as small, many have
                                underserved insurance needs. The small size of the business is often
                                interpreted as a lack of sales volume that keeps many producers and even
                                group carriers from establishing a strong presence in this market. Many
                                producers focus on just the personal insurance needs of the business
                                owner and overlook the other needs the business may have. Yet the
                                business owner looks to protect his or her business interests as much as,
                                if not more than, personal interests.

                                The strong and continued growth of this sector confirms that this market
                                deserves attention. While some markets and even occupations generate
                                high competition and market near saturation for disability income
                                insurance, the small business market is a growing area with unmet needs
                                and little competition.

                                Stable and Well-Established Businesses
                                While small business development is sometimes seen as risky and
                                volatile, the statistics tell a different story: 60% of businesses with two to
                                nine employees have been in business for 10 years and 78% state that
                                their firm is either stable or growing.4 Within these well-established going

                                3 National Small Business United and Arthur Andersen, 2001 Survey of Small and
                                  Mid-sized Businesses, Trends for 2000
                                4 The Smallest Businesses: Employers with Two to Nine Employees, LIMRA, 2001

4                                            FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                 The small business owner has
                                                                                 three top concerns:
concerns, savvy business owners have shown a proven track record of
providing a market-driven service or good, successfully meeting the
                                                                                 1. Protecting the business
market demand and generating business income. Although well-                     2. Recruiting and retaining
established and stable, many of these businesses started as either a sole
                                                                                    employees
proprietorship or with one or two employees whose numbers grew with
the business. As the business grows, so do its needs for both the owner          3. Controlling costs
and employees. Addressing those needs as they arise sometimes creates a
“patchwork” approach that may, in fact, create gaps.

The Small Business Owner Profile
Prefers One Resource for Business and Personal Needs
The small business owner wears many hats in keeping his or her business
a thriving concern. He or she recognizes the need to rely on the expertise
of those they do business with, so providing for more than one need is
essential to establishing a long-term relationship with the business owner.
Small business owners are more likely to meet with and purchase
products or services from individuals they have done business with than
from “strangers.” This means opening new cases is more difficult, so
referrals and networking are the preferred method for this market. Who
do you do business with every day? Why not consider those individuals
for your services?


The small business owner prefers a “one-stop shopping” approach for
securing information and products for protecting his or her business.5 The
successful producer for this market is prepared to discuss the owner’s
business to uncover any unrecognized needs. Two-thirds of small business
owners expressed a preference for one adviser for both their personal and
business needs; this highlights the degree of personal investment the
business owner has in the business.5 This also means a producer should be
prepared to discuss multiple products and understand how they may benefit
the business. Knowing the options for the products you offer puts you in a
great position to suggest ways the small business owner can save money.
This gives the owner some choices to help balance coverage and cost.


The small business owner has three top concerns:6
1. Protecting the business
2. Recruiting and retaining employees
3. Controlling costs


The successful producer will find ways to address those needs. To help,
MassMutual has many products you can offer – both personal and




5 U.S. Small Business in 2000, A Dynamic Market (2001) LIMRA
6 National Small Business United and Arthur Andersen, 2001 Survey of Small and
  Mid-sized Businesses, Trends for 2000

  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                          5
                           business, business owner or employee. Although the main focus of this
                           guide is disability income insurance, MassMutual provides many products
                           or programs for small businesses:


    Protect the Business                 Life Buy-Sell Insurance
                                         Life Key-Person Insurance
                                         DI Business Overhead Expenses Insurance
                                         DI Buy-Sell Insurance
                                         DI Insurance for Business Owner
                                         Qualified Sick Pay Plans

    Retain/Recruit Employees             Life Insurance
    Coverage for Employees               DI Insurance
                                         Retirement Plans
                                         Annuities
                                         Retirement Savings Protection
                                         Long Term Care Insurance

    Control Costs                        Optional riders and benefit amounts
                                         Optional waiting and benefit periods
                                         Variety of protects with different features to ensure meeting
                                         specific needs



                           What if the business needs a product MassMutual doesn’t provide? This is
                           a perfect opportunity to expand your practice and make arrangements to
                           offer the products of other carriers.* The key is that you are providing a
                           service by way of product or resource. Your small business client knows
                           he or she only needs to contact you for a multiple of needs. You are
                           providing a valuable service to the small business owner – helping him or
                           her focus on running their business.


                           Certainly, top on most small business owners’ list of needs is coverage for
                           the business, starting with the actual physical business property. In fact,
                           property-casualty coverage is often the “foot-in-the-door” product. But the
                           business insurance needs don’t end there. Business continuation needs
                           such as Buy-Sell life and disability income insurance, coverage for
                           business expenses, providing for employees’ benefits with life, medical
                           and disability income needs all are part of business protection planning.




                           *To offer products from other carriers, you must be properly licensed and appointed.


6                                        FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
Uses Technology Such as PCs and the Internet for Business
But MassMutual can offer more than just products for the small business
owner. Almost all small business owners use technology for their business.
The survey of small and mid-sized businesses conducted by National
Small Business United and Arthur Andersen in 2000 showed that 94%
own a personal computer for business purposes and nearly all of them are
connected to the Internet. This is a two-fold opportunity: You can keep in
regular touch with the business owner and help the business owner gain
efficiencies. MassMutual offers electronic application for individual
disability income insurance, as well as electronic billing options to
simplify bill paying.


Keep in Contact After the Sale
It may surprise you to learn that cost is not always the primary
consideration when small business owners decide to buy. This is very
much a relationship sale. The small business owners want producers who
will continue to consult with them on a regular basis after the sale. This
means establishing a regular schedule to return to your business-owner
clients and discuss their current business situation. Use e-mail* to send
items that may be of interest – such as our one-page sales sheets or third-
party articles about their business market – to the business owner on a
regular basis. And don’t forget to obtain referrals and recommendations
for new clients!


Preferred Markets
While the small business market overall provides a terrific opportunity,
not all businesses in the small business market are ideal for disability
income insurance. It is important that the jobs being performed by
employees in the small business align with our preferred markets because
many business owners prefer any coverage to be available to all
employees. Keeping this in mind and focusing on favorable industries will
greatly increase your chance of success with underwriting. Examples of
those businesses are:

• Small professional businesses such as
     • Architectural or engineering firms
     • Management consulting or public relations
     • Financial, insurance and business services
     • Computer, software, programming and data processing firms
     • Bio-tech firms




*Please refer to the Producer’s Compliance Manual for information about the use of e-mail.


   FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                       7
    With the introduction of FlexElect to our multi-life product portfolio, you
    have some flexibility to offer disability income insurance to a mix of
    occupations. But some businesses will not be able to secure disability
    income coverage. Examples of those businesses are:

    • Small construction companies

    • Small service businesses such as residential cleaning or building
      maintenance firms

    • Home-based businesses

    • Small trucking or transportation businesses

    While business owners or company executives may be eligible for
    coverage in these types of businesses, most employees who perform the
    manual labor will not. You can avoid disappointment by selecting those
    businesses with a mix of occupations that are favorable.


    Not sure if the business you have in mind is a good candidate for disability
    income insurance? Simply call your underwriter and review the business
    characteristics for advice. Depending on the size of the business and the
    number of employees, we may be able to offer coverage on an executive
    carve-out basis. Or we may be able to consider some streamlined
    underwriting requirements with multi-life groups of 20 or more.




8              FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                  S MALL B USINESS D ISABILITY
                                                                                I NCOME I NSURANCE S OLUTIONS



Small Business Disability
Income Insurance Solutions
Understanding that the small business owner prefers using one contact for
both personal and business needs means this process will take time. Begin
by obtaining information about the business. The best way to accomplish
this is to ask the business owner about his or her business – how it started,
how it works, what the business plans are. This is an important time to learn
about the business.


Ask high-gain questions so the business owner will tell you how revenues
are generated, who the key employees are, if there is a sales force and the
value statement of the business owner. It is important to actively listen.
This is your opportunity to get to know not only the business but also the
business owner. Your objective is to understand the multi-dimensional
needs of this business. This is your fact-finding about the business. This
enables you to recognize any needs that may be currently overlooked or
only partially addressed.


Helping to Protect the Business with Disability Income Insurance
By taking this approach, you can readily see that disability income
insurance can help the business owner on both a personal level as well as a
business level. In the event of disability, our insurance products can help:

• Cover the operating costs of the business
• Provide the funds for small business partnership buyouts
• Replace a portion of lost earnings – either the owner’s or his
  or her employees’, while maintaining tax advantages to your
  company
• Provide the owner or his or her employees return-to-work
  benefits
• Help protect the owner’s or his or her employees’ ability to
  make retirement contributions




 FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                         9
     P ROTECTING THE B USINESS
               BOE


                                  Your Entry to the Small Business Market –
                                  Business Overhead Expense Disability Income Insurance

                                 Business owners need basic protection for their business. Business
                                 Overhead Expense (BOE) disability income insurance is coverage designed
                                 to help protect the welfare of the business owner interested in keeping his or
                                 her doors open, should a total disability occur. It provides a reimbursement
                                 for certain business-related monthly expenses – such as meeting the payroll,
                                 rent and utility expenses – while the business owner is unable to work.
                                 These are expenses every business owner can understand. That’s why many
                                 producers have found this product the perfect key for opening the door to
                                 small business owners. It’s easy to understand and helps protect one of the
                                 owner’s most important investments – the business.


                                 BOE is specifically designed for professionals and small business owners
                                 who are actively engaged in their profession/business on a full-time basis.
                                 These are business owners whose presence is vital on a day-to-day basis;
                                 being away from the business will result in a definite loss of business
                                 revenue. These business owners generate business income and are directly
                                 responsible for incurred expenses. Independent risk-takers by nature, these
                                 individuals consider it unlikely they will ever be away from their business
                                 due to a disability. But if they are, their first concern is keeping the
                                 business going. That’s why BOE is the logical choice for a door opener.


                                 Business Overhead Expense insurance reimburses the business owner for
                                 certain normal and routine expenses incurred to run the business. Rent,
                                 utilities, employee salaries (restrictions may apply to family member
                                 employees), business loan or lease expense for depreciable assets (such as
                                 business equipment), and laundry expense are examples of expenses that
                                 would be eligible for reimbursement. This is by no means an exclusive list
                                 – other operating costs may be eligible, too.


                                 There are certain expenses that are not covered. Some of those expenses are
                                 additions to inventory, cost of goods sold, and cost of tools or instruments
                                 used by the owner or employees, such as paper, pens or forms.




10                                           FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                        P ROTECTING THE B USINESS
                                                                                                B UY-S ELL


      Business Protection and Buy-Sell Funding

      In the life of a small business, it’s a given that a transfer of ownership will
      happen. There are three types of transfers:

      1. Transfer due to the death of one of the partners or owners
      2. Transfer due to the disability of one of the partners or owners
      3. A living transfer

      Without proper planning, the first two situations can ruin much of the hard
      work put into building and maintaining the cash flow or future of the
      business. Most producers know about funding a life buy-sell agreement
      with a life insurance policy to provide necessary funds needed to transfer
      ownership should one of the owners die, but many disability buy-sell
      agreements rely completely on company funding.

      During the course of your career, you are three-and-a-half times more
      likely to be injured and need disability coverage than you are to die and
      need life insurance.7 So not only is a disability of a business owner more
      likely to occur, but the business is more likely not to have prepared for
      this possibility with a disability income Buy-Sell policy – leaving the
      business vulnerable to the sudden, unexpected business expense of
      executing a transfer of ownership without a funding vehicle. Why not fund
      the disability portion of a buy-sell agreement with a MassMutual
      disability income Buy-Sell policy?

      The transfer of business interest is a legal transaction. As such, a buy-sell
      agreement is a legal document. It addresses such issues as who the business
      owners are, what will be transferred, how much of the business the owner is
      entitled to, and what situations need to occur to execute the transfer of
      ownership. Either an attorney or a business valuation firm draws up a buy-
      sell document. For a buy-sell agreement to be needed, a business needs to
      have two or more owners. The MassMutual Buy-Sell policy is specifically
      designed for businesses with two to five business owners.

      How does a disability Buy-Sell policy help the business? The foundation
      of the disability Buy-Sell sale is the legal agreement. Once a business
      partner becomes disabled and no longer able to work at the
      business, the agreement comes into play. The MassMutual
      Buy-Sell policy can be used to fund the transaction. The
      business is not required to purchase a disability income policy
      for this; it can certainly self-fund this process and many do. But
      there is a distinct advantage to business owners of transferring
      funding to a MassMutual insurance policy. Once the agreement
      is executed, the transfer of business ownership can be funded
      with the help of contract benefits and not business profits.

       7 Source: Health Insurance Association of America, 2001

FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                                 11
     ADVANTAGES TO THE HEALTHY OWNER(S):
     • Business interest of disabled owner obtained at fair price
     • Maintains 100% ownership and control of business
     • Retains business profits – no need to support disabled partner
     • Benefits payable from the Buy-Sell policy are tax-free8

     ADVANTAGES TO THE DISABLED OWNER:

     • Provides the funds necessary to purchase their share of business
     • No legal responsibility for the business
     • Provides funds in addition to any personal DI benefits the owner can
       use for medical expenses, living expenses or future investments
     • Taxed only on the capital gain from the sale of the business




     8 IRC 104(a)(3) and IRC (a)(e)

12                FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                P ROTECTING THE B USINESS
                                                                                Q UALIFIED S ICK PAY P LANS



Qualified Sick Pay Plans

Without an established Qualified Sick Pay Plan, the problem that faces the
business owner is three-fold:
1. Without an established Qualified Sick Pay Plan, “wages” paid to a
   disabled employee are not considered a salary expense by the IRS and
   are not a deductible business expense.
2. Without an established Qualified Sick Pay Plan, the business owner
   may set a legal/moral precedent by paying the salary of one employee
   while disabled.
3. Without an established Qualified Sick Pay Plan, the employer has to
   reserve funding to pay the disabled employee as a business liability
   from the company’s balance sheet.


Establishing a Qualified Sick Pay Plan can help the business prepare for a
disability of an employee without putting business profits at risk. And it
keeps the business premium expenses a business deduction.


Here are some questions to open the discussion:
• If one of your key employees became disabled, how long would you
  continue that employee’s salary?
• When would you terminate the employee?
• Who would determine if the person was too sick or hurt to work?
• Would you like to tell this employee, “This is the last paycheck you’ll
  receive from this company”?
• How long could you afford to pay a non-productive employee?
• Do you currently have a written plan that allows for salary continuation
  for employees?
• Would you want to be able to deduct for tax purposes any payments made
  to a disabled employee? A Qualified Sick Pay Plan is part of a business’s
  fringe benefit package outlining how long an employee’s salary will be
  continued when he or she is disabled, as well as describing what percentage
  of the person’s monthly earning will be provided (if anything).


Requirements for Tax Qualification
1. Plan must be put into effect prior to a disability of an employee.
2. Plan must be communicated to all affected parties.
3. Plan should be in writing – i.e., evidence that the terms have been
   established.
4. Plan must show a business commitment to certain rules and regulations
   governing benefits.
5. Plan must be established for the firm’s employees.


  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                         13
   P ROTECTING THE B USINESS
D ISABILITY I NCOME I NSURANCE
   FOR THE B USINESS OWNER


                                 The disability benefits do not have to be funded with insurance, but there
                                 are powerful reasons to do so:

                                 • Firm changes a potentially enormous liability into a fixed, predictable
                                   premium cost for individual Disability Income policies – that may be
                                   discounted, unisex rates as a multi-life sale.*
                                 • Firm deducts the premium costs as a valid business expense.
                                 • Insureds do not add premium cost to their salary and benefits are
                                   taxable.
                                 • Disability is determined and funded by the insurer – no need to establish
                                   a reserve fund from business.
                                 • Firm can use disabled person’s salary to search for a replacement – no
                                   need to pay two salaries at once.
                                 • Firm doesn’t have to face the difficult and emotional decision of when to
                                   terminate an employee’s income.


                                 Want to know more? Check out MassMutual’s Qualified Sick Pay Plan
                                 Producer Guide (DI2100). Included are sample pre-approach letters, lead
                                 brochure, documents to help establish the plan and communication of the
                                 plan. Or check out the PowerPoint presentation for producer training
                                 available through FieldNet or your local MassMutual Sales Office.


                                  Personal Disability Income Insurance for the Business Owner


                                 The final component of small business protection is disability income
                                 insurance for the business owner’s personal income. While personal
                                 protection for his or her income might be the last consideration of a
                                 business owner, it is as important as coverage for the business.


                                 MassMutual can help with an individually owned disability income
                                 insurance policy that provides a benefit should the insured become totally
                                 disabled. This benefit is paid in addition to any benefit that may be
                                 payable under the Business Overhead Expense policy or the DI Buy-Sell
                                 policy. This helps protect both the business and the owner should he or
                                 she become totally disabled – funds would be available for business needs
                                 and the owner’s personal benefit would not come from the business.


                                 We also offer additional-cost riders to help the business owner customize
                                 coverage so it provides the most meaningful benefits at a manageable cost.

                                 • Partial Disability Coverage that provide partial benefits if the insured
                                   returns to work on a limited basis or if the insured returns full-time and
                                   still has an income loss of at least 20%



                                 *all discounts require Home Office approval


14                                            FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                   P ROTECTING THE B USINESS
                                                                                      E MPLOYER -E NDORSED
                                                                                           D ISABILITY

• Inflation Protection that increases your benefit to keep pace with
  inflation should your disability last longer than 12 months

• Protection for future income increases so you can purchase coverage
  now to protect yourself later

• Does the insured contribute to a defined contribution retirement plan?
  If the insured becomes totally disabled, we have a concept that can pay
  the same amount into an investment trust and held to supplement income
  at retirement (subject to certain limits)


Helping to protect the personal income and helping to protect the bottom
line of the business provides a solid foundation of coverage for the             Three in four workers
business owner, should he or she become totally disabled.                        consider employee benefits
                                                                                 to be very important when
Small Business Solutions
                                                                                 considering job opportunities.
Retaining and Recruiting Key Employees with Disability
Income Insurance
Small businesses function well because they are very much a team effort.
Employees perform several different functions. The dynamics of the
business also mean a high dependency on each team member. Attracting
and retaining highly motivated, self-reliant individuals is an important
consideration for a business owner.


This problem will be more pronounced over the next decade as the
number of younger workers continues to shrink. Employers have basically
two options: raise salaries and/or offer benefits. The latter is the choice of
many small firms today.


Why? Three in four workers9 consider employee benefits to be very
important when considering job opportunities. And small business owners,
especially since most of these businesses are well-established with
consistent incomes, are in a position to reward employees with benefits.
These can be either all employer-paid or employee-paid.




9 U.S. Small Businesses in 2001: A Dynamic Market (2001) LIMRA Research


  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                          15
     The Disability Income   Not surprisingly, the percentage of small businesses offering medical
                             insurance rose from 52% in 1994 to 71% in 2000. Firms with fewer than
     Insurance Reality:
                             five employees are twice as likely to pay the entire cost of coverage than
                             are firms with 50 or more employees.10
     • Most people need it

     • Too few have it       What is surprising, is that employers offer life insurance more often than
                             disability income coverage.10 Why is this surprising? Because the statistics
     • Insurance is the      show the need for disability income insurance is greater!

       most cost-effective   How so? Not only is the ability to earn a paycheck the most important
       solution              asset, it is also the greatest risk. According to the 2001 edition of the JHA
                             Disability Fact Book, during your career you are three-and-a-half times
                             more likely to be injured and need disability coverage than you are to die
                             and need life insurance. It seems logical to provide for the possibility of a
                             disability before the possibility of an unexpected death.


                             Disability Income Insurance for Employees
                             We develop, manufacture and distribute disability income policies
                             designed to help replace a portion of an individual’s income should he or
                             she become totally disabled. Our disability income insurance policies can
                             be purchased as an individual purchase – such as just for the business
                             owner – or we can combine individual purchases into a multi-life sale.
                             This provides advantages that are summarized below:

                                           Employer                                  Employee

                                Premium can be all employee-             Individual policy that is
                                or employer-paid or both                 completely portable


                                Guaranteed, discounted,                  Guaranteed, discounted,
                                unisex rates                             unisex rates

                                One bill that lists all                  Employee-paid premiums can
                                employees can be sent to the             be deducted from an employee
                                employer in either a paper or            paycheck if contributory
                                electronic format – and paid
                                via the Internet

                                Employer-paid premiums are               Employer-paid premium is not
                                tax-deductible                           considered income and not
                                                                         taxable

                                Benefits are provided by                 Benefits are paid directly from
                                insurer, not company funds               an insurer every month




                             10 U.S. Small Businesses in 2000: A Dynamic Market (2001) LIMRA Research

16                                       FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                                         R ETAINING K EY E MPLOYEES
                                                                                                               R ETIRE G UARD ®


        The RetireGuard® Advantage
        With 43% of small business owners sponsoring a retirement or pension
        plan,11 MassMutual also has a concept that can help ensure funds are
        available at the age of 65 to supplement retirement in the event of a total
        disability. This concept is called RetireGuard.


        Contributions to a qualified retirement plan can only be made if the
        individual is working. That means a total disability will stop any
        contributions. But with MassMutual’s RetireGuard,the insured doesn’t
        have to stop preparing for retirement. RetireGuard is neither a retirement
        program nor a substitute for one; it’s a disability income insurance policy
        that pays benefits to an irrevocable trust (held by The MassMutual Trust
        Company, FSB) that offers a wide range of funding options so at the time
        of claim, the insured can select the option that best meets his or her
        investment objectives.


        RetireGuard can help protect and maintain potentially 100% of retirement
        plans contributions, including both employer and employee contributions.


        Does RetireGuard really make a difference? See for yourself with the
        following case example.


        A Case Illustration
        Edward, age 35, begins contributing $10,500 annually to a defined
        contribution plan, such as a 401(k). All contributions are computed
        annually at an 8% rate of return.




                       Case Illustration*

   $1,250,000        $1,189,474      $1,156,183

   $1,000,000

     $750,000

     $500,000                                       $421,861
                                                                          Normal Age Retirement
     $250,000
                                                                          Disabled with RetireGuard
            $0
                                                                          Disabled without RetireGuard

* This is a hypothetical example and does not reflect the return of any
  particular investment or any tax rate assumptions.



        11 U.S. Small Businesses in 2000: A Dynamic Market (2001) LIMRA Research

           FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                                    17
     Normal Age Retirement
     Edward makes 30 annual payments of $10,500.
     At age 65, his retirement fund totals $1,189,474.

     Disabled with RetireGuard®
     Edward becomes totally and continuously disabled at age 40 with
     RetireGuard. Prior to disability, Edward made five annual payments of
     $10,500. Beginning 180 days after disability, monthly RetireGuard pay-
     ments of $875 are paid into a trust account. At age 65, his retirement fund
     totals $1,156,183.

     Disabled without RetireGuard
     Edward becomes totally and continuously disabled at age 40. Prior to disabil-
     ity, Edward made five annual payments of $10,500. No further payments are
     made after disability strikes and the plan is interrupted. At age 65, his retire-
     ment fund totals (without RetireGuard) $421,861.

     That’s a difference of $767,613 with RetireGuard!

     Shouldn’t you be suggesting RetireGuard to all your clients who have
     established a defined contribution plan?




18               FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                C ONTROLLING C OSTS


Small Business Solutions

Uncover the business owner’s tolerance for risk
Many small businesses are trying to find the right balance between
offering fair and competitive salaries and benefits, while keeping profits at
a level that keeps the business competitive. Affordability has consistently
been an issue for small employers. Small employers usually have little
room to absorb benefit cost increases. These employers are looking for
ways to control the cost of providing these benefits and are looking for
help in how to do this.


Because this is a market based on consultative sales and service, this is
where you can provide added value to your business relationship.
Knowing how to evaluate the needs of the business and the options
MassMutual provides can help you customize coverage and keep expenses
to a predictable, manageable level. Unlike group coverage that may
change benefits or costs on an annual basis, disability income insurance
products have a fixed expense.


Small business owners usually have a high tolerance for risk – they are
risk takers by nature. This individual can probably tolerate more self-
insurance than most. So your first objective is to discover how much risk
the business owner is willing to assume to trim expense.


A very typical disability income policy has a 90-day waiting period and an
age 65 or 67 benefit period. But there is a variety of optional timing that
can help reduce the premium expense. By extending that waiting period to
180 days or even 365 days, premium dollars can be saved. Is the business
owner willing to self-fund the salary for one year? Calculate what that
would mean in dollars to the owner – employees X annual salary. Is the
owner able to secure that amount in a reserve fund?


Shorten the benefit period or lengthen the waiting period
How about reducing the benefit period to five or even 10 years? Look at
the age group of the employees: Would a 10-year benefit period help
balance the risk and expense?


Always suggest a multi-life sale
This helps save money with a discount, it provides unisex rates for the
disability income policies, and the business owner’s business coverage
such as BOE and Buy-Sell policies can be included to qualify the business
for a discount.




  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                 19
                        Not all riders are created equal
                        Partial benefits are not always needed. How does the employer feel about
                        part-time employment? It may be appropriate for the business owner, but
                        not all the employees need to have the same benefits.


                        If premium costs are of concern, show the owner how optional coverages
                        impact cost. For example, riders such as the Cost Of Living Adjustment
                        rider (COLA) or the Future Insurability Option rider (FIO), while great
                        benefits, are best-suited to individuals in their early working years. Again,
                        look at the demographics of the employees. Is this rider adding enough
                        value? If not, don’t suggest it.


                        Some is better than none
                        Perhaps a benefit amount that is less than the maximum available is ideal
                        for this business. Especially if FIO is added to the policy, a smaller initial
                        benefit can help keep costs down. Remember, even a small benefit of non-
                        cancelable, fixed-cost disability income insurance is better than none.

                        Don’t overlook the tax advantages
                        There are very real tax advantages available to small business owners.
                        Company-paid premium for disability income insurance, including
                        Business Overhead Expense coverage, is a deductible business expense.
                        The only exception is DI Buy-Sell coverage: The premium is not a
                        business deduction, but the benefits are tax-free.


     Uncover the        Coverage can be at no cost to the employer
                        The premium can be completely paid for by the employees, or the
     business owner’s   employer can pay a portion of the premium expense. Any premium or
     tolerance          portion thereof paid by the employees is not a deductible business
     for risk.          expense. But it reduces or eliminates the cash outlay for premium costs.


                        Premiums rates are guaranteed not to go up
                        Unlike other group or association insurance, disability income insurance
                        has level premiums – even as the owner or employees age. This means a
                        predictable expense. While a business owner may see other rates increase,
                        this is one expense that won’t.


                        You have the solutions
                        The small business owner is looking for ways to keep expenses
                        manageable. Your ability to know the products and offer suggestions on
                        how to reduce cost brings value to the business owner. You have the
                        solutions to help them protect their business and save premium dollars.




20                                  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
                                                                                       U NDERSTANDING THE TAX
                                                                                  I MPLICATIONS FOR S MALL B USINESS



Understanding the
Tax Implications for
Small Business
Business Needs
Business owners have a variety of ways they can organize their company.
Considerations such as business size, potential liability, tax consequences
as well as advice from a CPA or attorney typically drive the choice of
business entity. While you may not give tax advice in your capacity as a
MassMutual agent, it’s important that you familiarize yourself with each
business entity, the tax forms filed and the tax implications will allow you
to more effectively sell disability income products.

Filing Status for Businesses
Corporation – Form 1120
• The most common form of business organization; some characteristics
  include limited liability of owners and issuance of shares
• Corporations are distinct legal identities that file their own tax return and
  pay their own tax
• Shareholders are typically paid a salary which will be reported on Form
  W-2 and will flow to Form 1040
• Shareholders have a right to the profits of the business
• The business entity may also make a contribution to a pension or profit
  sharing plan on behalf of the shareholder(s)
• To determine earned income for Corporation Shareholders, use:
    • Insured’s share of business profit/loss

    • Insured’s salary

    • Contribution to a pension/profit sharing plan made on the insured’s
      behalf by the Corporation
• Disability insurance premiums may be paid by the Corporation and
  deducted, resulting in taxable DI benefit to the insured
• If those premiums are instead bonused back to the insured and included
  on his/her W-2, a non-taxable benefit will result


S-Corporation – Form 1120S
• An S-Corporation is taxed like a Partnership. It also shares some
  similarities with Corporations such as limited liability of owners,
  issuance of salaries and wages paid to owners.
• S-Corporations file informational tax returns and issue K-1s to owners



  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                           21
     • A K-1 reports the owner’s share of income, credits and deductions and is
       used to prepare the owner’s tax return (individual or corporation)

     • Individual shareholders are typically paid a salary which will be reported
       on Form W-2 and will flow to Form 1040
     • The business entity may also make a contribution to a pension or profit
       sharing plan on behalf of individual shareholder(s)
     • To determine earned income for S-Corporation shareholders, use:
         • Insured’s share of business profit/loss
         • Insured’s salary
         • Contribution to pension/profit sharing plan made on the insured’s
           behalf by the S-Corporation
     • Disability benefits for S-Corporation shareholders are always issued on a
       tax-free basis
     • Individual Disability Income insurance (IDI) premiums paid may be
       deducted as wages (by the S-Corporation). As such, they are included in
       current income and taxed, resulting in tax-free benefits


     Partnerships – Form 1065
     • Partnerships do not pay federal income tax. Instead income or loss flows
       to the partners who are taxed in their individual capacities
     • Partnerships file informational tax returns and issue K-1s to owners
     • A K-1 reports the owner’s share of income, credits and deductions and is
       used to prepare the partner’s tax return
     • Partnerships may not deduct contributions made to a pension or profit
       sharing plan on behalf of a partner
     • Wages are not usually paid to individual partners since ordinary income
       is subject to SE tax on Form 1040
     • To determine earned income for individual partners, use:
         • Insured’s share of business profit/loss
         • Any guaranteed payments (also found on schedule K-1) made to the
           partner
     • Disability benefits for individual partners are always issued on a tax-free
       basis
     • IDI premiums may be deducted as a guaranteed payment by the
       Partnership. As such, they are included in current income and taxed,
       resulting in tax-free benefits


     Sole Proprietors – Schedule C
     • Individuals who file a Schedule C to report business income and
       expenses are typically unincorporated small business owners
     • Schedule C is filed with an individual’s Form 1040



22               FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
• Sole Proprietorships may not make a contribution to a pension or profit
  sharing plan on behalf of an owner
• Wages are not usually paid to owners since net income is subject to SE
  tax on Form 1040
• To determine earned income for Sole Proprietors, use:
    • Insured’s share of business profit/loss
• Disability benefits for Sole Proprietors are always issued on a tax-free
  basis
• IDI premiums paid be a Sole Proprietor are not deductible, therefore,
  benefits paid are tax-free


According to Current IRS Rules…
• Partners and Sole Proprietors are not considered to be employees,
  therefore,
    • Pension contributions made on their behalf are not deductible
    • Certain payments for fringe benefits are not deductible or must be
      included in income (ex: individual disability and health insurance
      premiums)
• S-Corporation shareholders are ordinarily considered employees, yet
  they are not for purposes of the fringe benefit rules. Therefore,
  individual disability premiums, if deducted, must also be included in (a)
  shareholder’s income


What about BOE?
• Premiums paid for BOE are considered a business expense and
  deductible regardless of how the business is organized
• We recommend the business always own the BOE policy or be the
  recipient of benefits so that the benefit flows through the business
• While the BOE benefit is considered taxable income to the business, the
  expenses will offset the income to eliminate a taxable gain


What about DI Buy-Sell?
• Buy-Sell coverage protects an interest in a business and is considered a
  personal insurance purchase
• Buy-Sell premiums are not tax-deductible yet proceeds are issued tax-free
• When the disabled owner’s interest is purchased, he/she will recognize a
  capital gain on the difference between his/her basis in the business and
  the purchase price




  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                         23
     M ARKETING S TRATEGIES



                              Marketing Strategies
                              As you can see, the small business market is a terrific opportunity for
                              sales in disability income insurance. There are four basic ways to access
                              this market:
                              1. Referrals from existing clients
                              2. Direct mail campaigns
                              3. Community relations
                              4. Networking


                              Referrals from Existing Clients
                              Developing a relationship with your clients is important. Not only does it
                              help you understand them and their needs better, it provides you an
                              opportunity to obtain client referrals.


                              Small business owners are probably more likely to do business with
                              someone who has been referred, rather than with a cold call. Just as most
                              people rely on a personal recommendation, business owners understand the
                              importance of establishing a name for themselves. And that’s what you’re
                              doing in the market – establishing a name for yourself as an insurance
                              professional who understands the unique needs of the small business owner.


                              One way to accomplish this is to limit your market to a specific industry
                              niche or profession. Some producers find this enables them to really
                              understand a specific industry, which helps them further develop
                              relationships with business owners in that industry. For example, you
                              might target small computer firms. Become knowledgeable on computer
                              trends. Understand the challenges of that market. Bring that cross-over
                              expertise of industry/insurance to the business owners. You will soon
                              become known as the expert for insurance needs in that field. And
                              referrals from existing clients will grow!


                              Direct Mail Campaigns
                              While this method is somewhat less effective in the small business
                              community, you can be successful with some tips and strategies to help
                              you increase your return rate. With this method, you will typically mail
                              a pre-approach letter with a lead brochure to business owners you have
                              pre-selected from a mailing list. Be sure to insert your business card! The
                              objective is to follow up with your mail campaign to generate interviews.




24                                        FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
Here are some tips to help you increase the success of your direct mail
campaign:


• Pre-screen your list by industry/size of business to increase your success
  rate from a DI market perspective so you don’t waste money mailing to
  questionable prospects.
• Always personalize your pre-approach letter. If you’re mailing to an
  association you’re affiliated with, include a few sentences mentioning
  your affiliation. The more personalized the message, the greater your
  success.
• Don’t mail more pieces than you can personally follow up.
• Follow up on non-responders. Anyone worth mailing to is worth
  following up on. Use your mailing as a speaking point to initiate the
  conversation.
• Keep at it. This is an activity that builds momentum.


Community Relations
The small business market is a strong, growing market segment that often
is the backbone of local commerce. As the saying goes, “There are more
millionaires on Main Street than Wall Street.” This market segment is
closely tied to the local community and economy. And it is the perfect
place for you to establish yourself as an insurance expert.


Offer your services for local community seminars or Better Business Bureau
functions. Most local communities sponsor adult education seminars in
financial planning, retirement planning and the like. How about sponsoring
an insurance planning seminar for small business owners?


Networking
Networking is similar to working with referrals, but requires a different
kind of planning and work. You recommend different community
professionals to clients and prospects, and those professionals do the same
for you. Consider establishing a working network with those professionals
that often work with the small business community such as attorneys,
CPAs or financial services professionals. Or establish a working network
within the local chapter of the Chamber of Commerce. That’s the
resources network small business owners use – and it puts you right there!


Don’t forget the people you do business with every day – as a consumer!
They already know you. Or how about those you have sold products to in
the past? Especially if you have sold them a life Buy-Sell policy or even
discussed business continuation with them. You can become that “one
source” of insurance expertise.




  FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                          25
     T HE M ASS M UTUAL E DGE



                                The MassMutual Edge
                                MassMutual has the products and concepts just right for the small
                                business market:
                                • Business Overhead Expense to keep the business going
                                • DI Buy-Sell insurance to help protect the business profits
                                • Disability Income funding for Qualified Sick Pay Plans to keep the
                                  business expenses predictable and deductible
                                • Individual disability income insurance to help protect the business
                                  owner’s income


                                MassMutual DI has the Web-based technology just right for the small
                                business market:
                                • Electronic billing, including bill reconciliation
                                • Electronic bill payment
                                • Policy serving at 1-800-272-2216
                                • One-page product and concept sales sheets and consumer PowerPoint
                                  presentations that can be e-mailed*
                                • www.halfapaycheck.com with an informational page just for small
                                  business owners


                                MassMutual has the reputation small business owners can rely on:
                                • Excellent disability income insurance products developed and
                                  manufactured for the needs of the market
                                • A knowledgeable and experienced sales team that provides support
                                  through the point of sale and beyond
                                • A claims team dedicated to helping individuals during one of the most
                                  emotionally and financially difficult times in their lives
                                • An 800# Service Center dedicated to consumer and producer post-sale
                                  needs
                                • A provider of a variety of insurance products and financial services to
                                  help the small business owner today and tomorrow




                                *Please refer to the Producer’s Compliance Manual for information about use of e-mail.


26                                            FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
       Sales Process and Steps of a
       Consumer Purchase Decision

Step                                       Action                                                        Tools

1. Identify      • Direct mail or e-mail                                      • Prospecting cover letters
   and           • Dialogue                                                   • Article reprints
   Explain
   the Need                                                                   • “Chances Are” brochure (DI1971)
                                                                              • “Disabled? Me? Never!” brochure (DI1940)
                                                                              • Needs-based sales sheets
                                                                              • Customizable producer tool on www.halfapaycheck.com

2. Seek          • Gather information                                         • www.halfapaycheck.com
   Information   • Analyze needs                                              • Resolutions online planning tool
                 • Provide leave behind for financially savvy clients         • For Financial Savvy Clients:
                                                                                      • “Corporate Performance Review”
                                                                                     • “Financial Strength” insert (COR3542)
                                                                              • “Life is Like a Coin Toss” corporate capabilities
                                                                                brochure (COR3519)

3. Evaluate      • Prepare a personal presentation and proposal               • “Discovery” offline and e-mail-able Web-based
                 • Competitively position MassMutual                            illustration system
                                                                              • Presentation Library
                 • Complete application, gather all corresponding
                   documentation, and meet medical requirements (Make         • For Clients:
                   sure all information is complete – if you have to return          • “Why MassMutual?” DI brochure (DI1920)
                   to the client for more information, they may reevaluate    • For Producer Reference:
                   their purchase decision.)                                         • “DI Product Portfolio” brochure (DI1900)
                 • Identify cross-selling opportunities (e.g., RetireGuard,          • Product marketing guides
                   spouse discount, rider options)                                   • “Complete Application Requirements Guide”
                                                                                       (DI1958)
                                                                                     • Underwriting Guidelines

4. Purchase      • Present policy                                             • What Every Claimant Should Know About their DI
                 • Reaffirm need for protection, confirming smart decision      Insurance Claim” brochure (DI1938)

                 • Provide information on how to file a claim if the need
                   ever arises
5. Ongoing       • Ongoing contact and monitoring of client situation         • Client database or tracking tool
   Evaluation    • Present new protection opportunities                       • www.halfapaycheck.com
                                                                              • Article reprints
                                                                              • Needs-based brochures
                                                                              • Inforce marketing materials




        FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.                                                                           27
     A BOUT M ASS M UTUAL



                            About MassMutual
                            Ranked second in the individual disability income insurance market,*
                            MassMutual helps support people during the stress of a disability as the
                            result of an accident or illness and helps them transition back to the work
                            environment. MassMutual Financial Group – comprised of member
                            companies with over $240 billion in assets under management as of year-
                            end 2002 – is a global, growth-oriented, diversified financial services
                            organization whose member companies provide life insurance, annuities,
                            disability income insurance, long term care insurance, retirement planning
                            products, structured settlement annuities, trust services, money management
                            and other financial products and services. MassMutual Financial Group is a
                            marketing designation (or fleet name) for Massachusetts Mutual Life
                            Insurance Company (MassMutual) and its affiliates.




                            *According to the 2002 U.S. Individual Disability Market Survey conducted by
                            JHA (www.jhaweb.com) for non-cancelable new sales premium and policies as of
                            December 31, 2002.

28                                       FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC.
Massachusetts Mutual Life Insurance Company
and affiliates, Springfield, MA 01111-0001

www.massmutual.com




MassMutual Financial Group is a marketing designation (or fleet name) for      DI2502 903
Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliates.   C:46049-000

				
DOCUMENT INFO