Will your business survive without you?
Research shows that 1.5 million small businesses without business protection insurance are at risk of immediate closure*
The report by Legal & General’s business protection branch has found that: more than a quarter (26%) of Small Medium Enterprises (SMEs) would need to close immediately if a key person died or became seriously ill.
What is a key-person?
A key-person is someone crucial to a business, whose absence would mean the company would suffer financially. They could be the owner, the founders or perhaps key employees. They may hold unique skills or maintain a vital client relationship within the business. Their role may contribute to a large proportion of profit and this would have a detrimental effect on the business if they were no longer able to work. Key-person insurance is fundamentally the protection of company profits that are attributed to key employees.
Legal & General’s State of Nation’s SME report found that 15% of businesses which had encountered the loss of a key person had closed their doors as a result.
The research suggests that 1.5 million businesses could be a risk of immediate closure should something happen to a crucial member of staff. While a further 26% of companies surveyed said they would cease trading within a year.
The survey of 700 small companies, which first launched in 2009, also found that nearly two-thirds of them had more than one key person. And that losing them was their main concern. Of those who had lost a vital member of staff, almost a third (30%) said that it had impacted on their profits, and one in five (19%) said that their customers had lost confidence in them.
Despite this, 70% said they had either never considered business protection or did not understand the need for it. Just under half (48%) of those surveyed did not have any cover in place for any key risks, including their top personnel, debt or share protection.
According to a recent government paper**, SME’s account for 98% of Britain’s private sector businesses. And, they employ more than 16 million people. L&G’s research suggests that as many as three million of these companies could be at risk of losing a key person and closing as a result. While indicating that around 4.3m people have little or no protection against losing their jobs should their employer suffer from a critical event.
Encouragingly, the report did reveal that almost two-thirds of small business owners (63%) said they would be happy to be contacted by an adviser about business protection, the report revealed.
“Whilst many companies will insure their computer systems or buildings, they often don’t think about protecting their most important assets – their people. Without the relevant business protection, the impact of losing a key employee or business owner could threaten the ambitions and hard work of SMEs up and down the country.” Richard Kateley Head of intermediary development at L&G
This article was written with thanks to Cover magazine. Source: Adam Saville Cover Magazine August 2019
*Legal & General’s State of Nation’s SME report
**HMRC SME action plan 2018-2019
Case Study
Mr and Mrs H are self-employed and run their own paramedic outsourcing company.
This is a highly competitive industry and it is rare that new contracts become available to pitch for.
Mr H wanted to protect his company profits should he suffer a Critical Illness. His sole contract ( a sports stadium) rely on him to provide paramedic services, without which, sports games could not legally be played. His contract states that he must be available whenever they need him. If this were not the case, he would lose the contract immediately and his company would, therefore, cease to operate.
Mr H told us that in the event of Mrs H having a critical illness, it would be important for him to know she was being taken care of and if he were to become her carer, this would be detrimental to the company. He wanted to ensure that funds would be available to provide professional medical care for her and allow him to continue to fulfil his contract.
Mr and Mrs H, chose a sum assured of £500,000 over a term of 5 years (the length of the employment contract) at a monthly premium of £290.61 for him and £373.68 for her. They now have peace of mind that their company profits are protected should they suffer illness or accident for the duration of the term of their contract.
Please note that the premiums provided are indicative only and are based on this specific case study/ example, which is shown for information purposes only. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.
Client ID: 142636864
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