While it’s important to distinguish business protection from personal cover, however, the former should not be looked on as purely a corporate cover.
Too many advisers dismiss it because they have no “corporate clients” – but most do have SME owners and directors on their books, and these are the people and businesses that need it most.
Business protection insurance is, in a sense, a hybrid insurance: it’s often said that group protection is discussed across the boardroom table, while personal protection is arranged at the kitchen table.
With business protection, however, the personal and business risks can be addressed in a single conversation.
A lack of awareness
There are, of course, a wide range of considerations around business protection that need to be taken into account.
Most significantly, these are around the people, debts and potential costs and losses to be covered, as well as the duration of cover. These factors will, in large part, determine the premium.
In most cases, though, these discussions never even get this far, as the sale of business protection often falls at the first hurdle due to clients not understanding the risks and what cover is available to address them.
Advisers have a key role to play in both of these areas.
And it should be an easy task.
The Legal & General 2017 'State of the nation’s SMEs' report, which surveyed small business owners, showed a significant need for the various types of business protection available:
- The average age of owners is 48, rising to 51 for established businesses (10 years or older), with 70 per cent of owners over 40.
- 65 per cent had some form of business debt, with average borrowings of £176,000 across credit cards, personal loans, directors’ loan accounts, overdrafts and business loans.
- 53 per cent of businesses think they would cease trading in under a year after the death or critical illness of a key person.
Businesses’ exposure contrasts strongly with their appreciation of the risks.
Of those without loan cover, for example, 75 per cent did not see the need or hadn’t considered protection, while 26 per cent did not even realise a director’s loan account would need to be paid back in the event of their death.
When it came to key person risks, 32 per cent hadn’t considered it, 31 per cent had not got round to it, and 28 per cent had assumed cost would be an issue. Others said it was just too complicated.
More than half, meanwhile, said they had left no instructions in their will regarding shares in their business; a third in partnerships and limited companies had not reviewed their partnership agreement or articles of association since the business started.
Finally, 70 per cent of business owners had not even heard of relevant life plans.
A job to do
Along with this widespread lack of awareness, the report also clearly shows the importance and scope for advisers to address it.
It also reveals the significant opportunities if they do:
- For those who have protected their loans, 84 per cent sought professional advice, either through a financial adviser or their bank.
- Of those who had heard of relevant life plans, over half had taken out a policy and, when the details were explained, almost three quarters (73 per cent) said they were receptive to the idea.
- Asked how they would prefer to learn about business protection insurance, 75 per cent named either their financial adviser or accountant again – showing the importance of these two professionals working together for the benefit of an SME.
As such, the biggest barrier to greater uptake of business protection can be accountants and advisers not raising the subject with their clients.
