BSMG Blog: Protecting the Future of Families and Businesses

Use These Proven Methods When Submitting Business Owned Life Insurance

Posted by Jeffrey Backofen on 28 Jul 2017


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Our guest blog is written by Jeff Backofen, Regional Chief Underwriter for Principal Financial Group. He held underwriting leadership positions at Mass Mutual and Phoenix Life prior to joining Principal in June 2013.  Jeff has presented at several industry and association conferences, including the Association of Home Office Underwriters (AHOU) and Bramco Underwriting Conference. Jeff shares tactics that you can use to generate a successful underwriting risk management strategy with business owned life insurance. 


Okay, you just sold a large business insurance life case. Next step: underwriting.

If you just yelled “help!” — you aren’t alone. Many financial professionals fear the life underwriting process, but it doesn’t need to be daunting.

One of my favorite sayings is “you’ve sold the client, now sell the underwriter.” And you can often use the same tactics you used to convince the client of the need for life insurance to explain the need for coverage to the underwriter.

Consider a Cover Letter

One effective strategy is a well-crafted cover letter, which — along with the proper financial documents — can go a long way toward justifying the need for coverage. In fact, cover letters often make or break a case. 

While it may be interesting that the client is your neighbor or your daughters play travel soccer together, this does nothing to explain the need for coverage. The underwriter wants critical information — how the amount of coverage was determined, information about the value of the business, and perhaps unique skills and talents the client brings to the company. Providing pertinent information and documentation to support the sale will help ensure a hassle-free underwriting process.

How much coverage will an underwriter approve for common business insurance scenarios?

This is a question financial professionals frequently ask. The answer varies from company to company, but the following rules of thumb can be used to determine approximate risk amounts:

  • Key person. Funds are used to pay for the process of replacing key employees. It’s important to demonstrate why a person is key — do they hold a unique skill, or have unique and important business relationships? The older the person is, the less significant the need becomes, as the business should already have a succession plan in motion. Risk amounts are generally calculated at 5 to 10 times the income of the key employee. Somewhat higher factors up to 15 times can be used in special circumstances.

  • Buy-sell. There should be a written buy-sell agreement in place, which can be presented to the underwriter to demonstrate the need. Coverage amounts are based on the client’s percentage of ownership of the fair market value of the company. All owners should be covered, and if one or more aren’t, please explain why (e.g., if they’re uninsurable).

  • Loan coverage. Generally loan coverage will cover roughly 75% of the loan amount, but information here is key for the underwriter. What are the terms of the loan? Who’s paying it off? A good cover letter and a copy of the loan agreement can be vital.

Key takeaway

Communicating the right information is the key to an easy, stress-free underwriting process. A good underwriter is looking for ways to make the case work. The more detailed and relevant information you provide, the better your underwriting outcome will be.

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Topics: Life Insurance, Risk Differentiation Underwriting

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