Today's challenging economy dictates that small business owners be more focused and nimble than ever before. Margins are slim and savvy businesses are looking for every possible advantage to help them meet their bottom line. From managing daily expenses, to paying rent to ensuring payroll is met, every task is crucial and nothing can be overlooked.
In that context, it can be extremely challenging to get small business owners to think beyond the issues that face them today and focus on future necessities – namely business continuation plans and executive benefits, both of which can be addressed through life insurance. The problem is, having that initial conversation with your small business client can be a challenge in and of itself.
According to a 2009 LIMRA study of 874 small businesses with 100 employees or less, 71 percent of those surveyed said they had thought about who would run their business in their absence, but only 35 percent of all surveyed had a business continuation plan. Furthermore, only 14 percent of those with a business continuation plan had life insurance as part of their plan.
In terms of executive benefits, the same LIMRA study points out that less than half (46 percent) of small businesses provided any type of executive benefit, only 20 percent provided an executive bonus plan and only five percent provided a Non-Qualified Deferred Compensation plan (NQDC) plan.
These are significant issues that every small business should address today to ensure they are prepared for the challenges that may come tomorrow. Yet, understandably, focusing on their life insurance needs is not a top priority for many small businesses when keeping the lights on still ranks as a major concern.
So how can you get your small business client thinking about the benefits of life insurance? Start with a talk about taxes.
Talking Taxes
Recommending that a client review the new tax laws – specifically the laws put into effect with the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – is a great way to connect with your clients and demonstrate the value of incorporating life insurance into their larger business strategy. Of course, you should always qualify the conversation by directing them to a tax attorney for more education on the topic since Allianz Life Insurance Company of North America or its agents do not provide legal or tax advice.
There are a number of changes that are relevant to business owners both personally and to their employees as well – especially since these changes are good for only two years, expiring at the end of 2012.
Individual taxpayer provisions – relevant changes for both income taxes and estate taxes include:
- Income tax and payroll tax changes
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- Lower income tax rates with no phase-out for itemized deductions or personal exemptions.
- Lower capital gains rates of 0 percent and 15 percent, depending on income.
- In 2011, a one-year only reduction of 2 percent in employee withholding for Social Security payroll tax (down to 4.2 percent for employee portion only).
- Estate tax changes
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- The estate tax exemption was set at $5 million per person and $10 million per couple for estates of decedents dying in 2011 and 2012.
- Gift tax exemption increased to $5 million per person for gifts made in 2011 and 2012.
- The tax rate was capped at 35 percent for estates, gifts and generation skipping transfers for 2011 and 2012.
- "Portability" of the estate tax exemption is available to married couples, meaning that any unused estate tax exemption of a deceased spouse can be carried over and utilized by the other spouse who dies second.
Business tax payer provisions – relevant changes exist in the areas of expensing and incentives.
o No change in tax rates for C corporations, but flow through entities like partnerships and S corporations are taxed at individual owner's rates; lower income tax rates help those business owners.
o New bonus depreciation deductions for certain businesses.
o Higher section 179 expensing abilities.
