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4 Factors That Shape Your Insurance Risk Profile

The following content was originally posted on LandscapeProfessionals.org by Drew Garcia, program director for NALP’s Workers’ Compensation Program.

Ever wonder why your insurance rates high when your competitors are low? There are reasons for that including, frequency of claims, severity of claims, experience rating, average claim cost incurred, operations, trends, loss ratio etc. If you evaluate your risk profile you can take action to lower your premiums.

Here are 4 factors that help shape your risk profile.

FREQUENCY OF CLAIM
The number of workers’ compensation claims you average per million dollars in payroll.
Calculation = # of claims / (annual payroll/$1,000,000)
Evaluate – How often are you having workers’ compensation claims and how does that compare to other landscape companies in your region or state?  You can expect your insurance premiums to be higher if your frequency rate of claim is higher than the average.
Action – If you are having a frequency issue, you need to assess;
– Trends (back, hand, wrist, knee…)
– Cause (lifting, punctures, slips…)
– Implement corrective actions to help mitigate the risks associated with your claims.  Take it to the next level and evaluate “near misses.”  Treat a “near miss” as if it were a claim and strategize a corrective action to prevent it from happening in the future.

LOST TIME CLAIMS (INDEMNITY)
The number of “lost time” claims your company has per million dollars in payroll.  These are the claims in which your employee loses time away from work.
Calculation = # of lost time claims / (annual payroll/$1,000,000)
Evaluate – How often are you having workers’ compensation claims that result in lost time and how does that compare to other landscape companies in your region or state?  You can expect your insurance premiums to be higher if your Indemnity rate of claim is higher than the average.
Action – If you are having an indemnity issue, you need to assess;
– Trends (back, hand, wrist, knee…)
– Cause (lifting, punctures, slips…)
– Implement corrective actions to help mitigate the risks associated with your claims.  Establish a “return to work program” which allows your injured employees an opportunity to come back to work on limited duty.  This will help you monitor your employee’s progress and keep them feeling a part of the team.

EXPERIENCE RATING
Your experience rating is a combination of your loss data and total payroll when compared to your industry typically but not always, over a three year period.  Your experience rating has the ability to credit or debit pricing accordingly based on your history.
Action – Controlling your frequency and indemnity claims will ultimately be reflected in your experience rating.

OPERATIONS
Heavier operations would include hardscape construction, tree trimming, and snow removal in which generally heavier machinery and product is used thus a higher exposure to injury.  Compare these types of landscape operations to a lighter exposure such as landscape maintenance; mowing, edging and pruning.
Action – Identifying the exposures that are unique to your operations and then implementing safety programs catered to your exposures will help protect your employees.  Although your operations might consist of heavier exposures, you have the ability to implement tactics to mitigate the claims from happening and subjectively making your risk profile more appealing.  Don’t wait for the injury to occur, be proactive and stop the claim before it transpires.

Your risk profile has already been created whether you know it or not.  The opportunity for you to own it and improve it is always available. To look at lowering your workers’ compensation insurance, take a look at NALP’s new program.

 

Let All 9 Insurance help you build a policy for your business that will protect your assets and employees.  Contact Us to schedule a FREE consultation!

Life Insurance for Small Businesses

The following was originally posted to WealthManagement.com:

Your clients likely understand that a life insurance policy can help protect their families, as it provides a cash death benefit to help support the surviving spouse and children. But life insurance policies aren’t only for personal use; separate policies can also help small business owners protect their businesses in the event of their own death or the death of a partner or other key employees.

“Life insurance is imperative for the health of a small business,” says Dave Mohr, national sales director for Nationwide’s business solutions group. “It helps ensure a smooth transition and continuity after the death of an owner or partner, so a business can continue to operate and move into its next phase.”

The people who work for your clients depend on them for business continuity, and so do your clients’ families. Often small business owners have much of their assets tied up in their business, and a smooth transition helps ensure that the business continues to be an asset client families can rely on.

With so much on the line, here’s what your clients need to know about buying life insurance to protect their small businesses.


What life insurance covers
Small businesses purchase life insurance for a number of reasons. It can be used to fund the daily operations of a business if a business owner dies, to buy out a deceased partner’s share from their family, or to provide income to help replace a key employee. In certain cases, life insurance also can be used to fund benefits for top employees.

Here’s an overview of the types of policies that entrepreneurs may find useful:

Personal life insurance. A personal life insurance policy is typically held separately from policies associated with a client’s business. Personal coverage provides protection in the event of an insured’s death to help the family financially.

Key person insurance. Business owners may want to take out individual policies on key employees such as partners, executives or salespeople who are top drivers of company profits. Policies should be owned by the business and cover the cost of replacing that employee, as well as the cost of potential lost revenue in their absence. Mohr says that it’s not unusual for businesses to buy policies worth five to 10 times an employee’s salary.

Buy-sell agreements. Life insurance can be used to fund a buy-sell agreement, which outlines a plan in which surviving partners buy out the shares of a deceased partner at a previously agreed-upon price. The life insurance policy, which is held by the business itself or the partners, covers that cost. The whole agreement is typically outlined in a contract among the owners of a business.

Funding executive benefits. Attracting top executive talent to a business often means offering attractive benefit packages. However, these packages can create unfunded liabilities, says Mohr. Life insurance can be used to help fund benefits such as bonuses or retirement benefits.

How to choose coverage
Small business owners can choose from a wide array of insurance products, such as term life insurance, variable life and universal life. What type of policy clients should buy and how much insurance they should purchase will depend on a company’s specific needs and size, says Mohr.

For example, a startup company that does not yet have a lot of cash flow would likely consider an inexpensive term life insurance policy to help cover the loss of an owner, he says. On the other hand, a more mature business with strong cash flow might use institutionally priced products that offer unique benefits to businesses.

“In general, small business owners have unique needs, and every case is different,” says Mohr. Consider using tools like Nationwide’s Small Business Solution Analyzer, which can help advisors give clients a complete view of the insurance products that can best help their business.

To learn more about how All 9 Insurance Group can help your small business get extra protection and other benefits, call us today at (856) 477-2526.

PLEASE NOTE: Federal income tax laws are complex and subject to change. Neither Nationwide, All 9 Insurance Group nor any of its representatives or underwriters give legal or tax advice. Always consult an attorney or tax advisor for answers to specific questions.

Life Insurance’s Role in Family Business Planning

The following article was originally published on WealthManagement.com:

 

Life insurance professionals can help drive family business succession planning action. However, determining if life insurance makes economic and planning sense takes multiple perspectives. Each advisor in a team may provide insight into the insurance decision-making process that’s both essential regarding the value of life insurance in the family’s plan, but also helpful in educating the business owner and their family. Here are some interesting uses of life insurance for family business advisory teams to consider.

Entity Redemption Agreement

This is a legal agreement obligating the business entity to purchase all or part of an individual owner’s interest in the business for an agreed-on price. The primary reason a family business would consider implementing such an agreement with life insurance is to help create liquid dollars to pay estate taxes. Liquidity is vitally important in family business succession planning, and finding it often isn’t easy.

Traditionally, under Internal Revenue Code Section 2042, the proceeds (death benefits) of a life insurance policy owned by an individual are included in that individual’s estate, regardless of who the beneficiary is. However, life insurance owned by a business on an individual owner or key person generally isn’t includible in the insured’s estate. In addition, life insurance benefits payable to the business are typically received free of income tax.

The proceeds of life insurance owned by a business are, however, typically includible as an operating asset in the valuation of the business. Therefore, using life insurance as a financial tool inside the family business for succession success has often gone unexplored, given the valuation challenges (that is, the concern that the death proceeds will add to the value of the family enterprise, thus negating the benefits of the life insurance liquidity). Instead of focusing on the family business as a potential owner of life insurance, many business owners have used traditional irrevocable life insurance trusts (ILITs) in concert with a gifting strategy to fund liquidity needs at death.

Combining With Buy-Sell Agreement

Using life insurance in concert with a buy-sell agreement isn’t a new idea. Employing an entity redemption agreement alongside a buy-sell agreement simply expands this type of planning.

How it works. The agreement itself creates a legal requirement that the business must purchase part, or all, of the stock at the time of the business owner’s death. The amount of business interest to be redeemed is often equal to the estate tax projected.

The family business applies for and owns a life insurance policy on the business owner’s life. The business pays the policy premiums and is the policy’s beneficiary—the premiums aren’t deductible. When the business owner dies, the business receives the life insurance proceeds, in most cases, income tax-free. Then, pursuant to the entity redemption agreement requirement, the business purchases, using the cash from the insurance policy proceeds, the agreed-on business interest from the owner’s estate. The estate’s executor then has cash that may be used to meet estate tax obligations and other settlement costs, and the business may redistribute shares to the remaining owners or hold them.

What does the life insurance provide to a family business?

Acquiring life insurance inside the business using an entity redemption agreement can be a straightforward way to help provide liquid dollars for payment of federal and/or state estate taxes. Its lack of complexity may minimize planning delays, and cash can become available for the premium payments, all of which can help a business owner take planning action. Using a redemption agreement also reduces or eliminates the use of personal assets (cash) to pay for life insurance premiums to perpetuate the family business. There’s also no need to use the gift and generation-skipping transfer tax exemptions.

Combining the entity redemption agreement with traditional ILIT planning. It’s important that you continue to monitor this strategy, as you’ll want to ensure that the amount of the redemption does, in fact, cover the estate tax due. Also, as with any existing life insurance that you consider, you’ll also need to monitor the transfer-for-value rules.

Using a Grantor Trust

Equalizing wealth transfer using a grantor trust. Family business owners, whether they have their entire lifetime exclusion amount (currently $5.43 million) remaining or have already gifted to a grantor trust using the lifetime exemption gift limits, can consider grantor trust planning as a means to equalize wealth transfer to heirs when the intent is to have only those children or family members working in the family business receive stock ownership. Using lifetime exclusion gifting to centralize the business interests in those who work in the business is a common succession strategy. Adding life insurance inside the grantor trust to enhance or leverage the trust assets can further aid this approach.

To illustrate this idea, here’s a simple example: Consider a family business worth $10 million owned by a couple who have two adult children: Adam, who works in the business and is capable of running it someday, and Ben, who’s enjoying a different career with no interest in the family business. Ideally, the couple would like the family business decision-making and control to lie with Adam, but they still want to be fair to Ben.

The couple isn’t ready to give up control of the business just yet, so they create a grantor trust for the benefit of Adam and place $8 million of the family business stock in it. At the same time, they create an ILIT for the benefit of Ben and gift $2 million to it, which the trust then uses to acquire an $8 million survivorship policy on both the parents’ lives. This combined use of a grantor trust and an ILIT helps the couple achieve both their business and estate-planning objectives. They’ve given away $10 million of their lifetime exemption, but because of the leverage of the life insurance, they’ve given both children the same amount. One heir received cash and the other the business interest.

Although recent tax law changes have alleviated some of the need family businesses have for liquidity at death, life insurance still has a key role to play in succession planning.

Why Key Man Business Insurance is Needed

In every business, there is one person that tends to hold everything together, whether it is the owner or the founder or a key employee. Like every one else in the business, their future is uncertain, and whether or not they may face an accident or even death is unknown to them. That is why we are offering Key Man Insurance to help businesses from the loss of a crucial employee.

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Key Man Insurance is essentially a life insurance policy that helps a company stay afloat and survive after losing a crucial person in the business that may have been the one to maintain essential tasks within the company. With this insurance, it can give a company more options other than filing for bankruptcy. How this works is the company interested purchases a life insurance policy on the crucial employee. The company pays the premiums and becomes the beneficiary of the policy. If the unexpected happens and the crucial employee passes away, then the company would be the one to receive the insurance payoff.

With Key Man Insurance, the money given to the company in the time of a crucial employee’s death can be used for finding a replacement person. In addition, the money could also be used to keep to company afloat to ensure a successful transition from one leader or key employee to another.

At All 9 Insurance, we have multiple insurance policies for businesses that can help protect their assets, and as always we strive to protect what matters most. If your business is in Haddonfield NJ or the surrounding area and you would like a free business insurance consultation please complete the contact form on the right.