Mention the word ‘insurance’ and most people switch off, but a recent study by Legal & General produced some really surprising – in fact shocking – results when they asked a number of SME businesses about the insurances they have in place to protect their business and their livelihood. This prompted us to put a short newsletter together to remind business owners about the options available for business protection and the importance of reviewing your existing arrangements to ensure they are still relevant and appropriate for your circumstances.
It was discovered that the number of businesses with some form of business protection in place was surprisingly low and it highlighted the fact that some were more likely to have pet insurance in place rather than sufficient insurance to protect their business.
The average business borrowing was £344,000 financed in various ways including directors loans, business loans, personal loans and credit cards, yet according to L&G a large proportion of the businesses had no form of cover in place to repay this debt.
It is important to remember that a directors loan account must be repaid on death and of the 84% of businesses with directors loan accounts only 28% were actually aware of this. No doubt many businesses would struggle to raise sufficient funds if a loan was suddenly called in.
Another key issue is what would happen to the shares if a shareholder died and would the remaining shareholders be able to retain control of the business. Over half of the businesses in the report admitted they had left no instructions in a Will or made any special arrangements regarding their shares in the event of a shareholder’s death and many had not even considered it.
Similarly, more than half of the businesses contacted by L&G had not considered whether their business would survive the loss of a key person or felt they had enough staff in place to cover this eventuality. Yet the report indicated that as many as 40% of businesses could cease trading as a result of losing a key person and their 2015 claims statistics show that the average age of claimants under critical illness cover was 47.
Most business owners are focused on the day to day running of the business and its profitability yet many lack vital cover for certain unforeseen events and could be missing unidentified risk to their business. Business Protection could help financially secure the business in the event of a death or critical illness of a key person or owner which is why it’s well worth considering and is far less complex than many people think. So a good starting point is to consider the following three questions:
Would the business survive the loss of a key person or would it cease trading?
What would happen to the shares if a shareholder died?
Could the business repay its debt if an owner died?
The research uncovered some interesting attitudes from the SME business owners they interviewed and highlights the potential issues caused by inadequate insurance provision – after all, these are real issues experienced by real businesses. If any of this strikes a chord and you would like to discuss your own business protection arrangements please contact The Financial Options Group on 0161 764 9944.