Businessman with red cape staying on the roof of skyscraper

As a business owner, it is vital that you put thought into including business protection in your financial plan for the year ahead, says Richard Kateley, at Legal & General.There is no better opportunity as a business owner than the start of a new year to set out your agenda, assess your finances and consider New Year resolutions which will help to keep your business on track. As a business owner, it is vital that you put thought into including business protection in your financial plan for the year ahead as these policies can be essential in keeping SMEs protected from unexpected and often critical events.

Every year thousands of businesses don’t think twice about insuring their premises, cars, vans computers and machinery in the UK, yet many of them never consider insuring their key people. Losing a key person, who can be much more difficult to replace than a computer or a car, is also likely to have a bigger impact on your business. You might think the prospect of insuring your business will be a complicated and perhaps costly process, but the principles of Business Protection are very similar to other types of protection. There are three areas of focus:

  • Key Person Protection – What would you do if a key employee were to fall seriously ill or die? When coming to terms with the death of a key employee, this policy will a business financially, helping to cover the cost of recruiting and training a new employee, as well as covering any lost revenue that results.
  • Shareholder Protection – Upon the death of a co-owner or shareholder, this insurance will pay out to enable any remaining owners to buy residual shares. This is particularly important as if a shareholder does pass away, their shares could become tied up in probate, grinding the business to a halt or worse, should they be a majority shareholder, force a business to cease trading altogether. More than half the businesses we interviewed in our ‘State of the Nation’ research had left no instructions regarding shares in their will, whilst a third of owners had no life insurance to protect these assets.
  • Debt Protection – It’s no secret that businesses are finding it harder to secure funding from more traditional sources and instead are turning to unsecured forms of borrowing. Worryingly our research showed that around a third of businesses, including 58% of small businesses and 42% of UK sole traders, have no life cover in place to repay their debts should they die or become critically ill.
Business loan cover can help to protect your organisation if it is unable to pay back any outstanding loans should the business owner pass away. As with other policies, a lump sum is provided to help pay any outstanding debts, such as a Directors’ Loan account, which needs to be repaid upon death. Importantly, these policies also protect a director’s personal wealth if the business is unable to repay their debt.

The death of a key employee is certainly not something that anyone wishes to think about, but as a small or medium-sized business the impact of such a critical event on day-to-day operations and revenue could be huge. Our research found that 36% of businesses thought the death of a business owner or key employee would have the most impact on day-to-day operations, and whilst you might think business protection will be expensive, in truth research has shown that people think that life assurance is four times more than it actually is. The cost of not having that protection in place could be much higher – perhaps even costing the future of your business and that of your employees.

The first few months of the new year provide a great opportunity for you to speak with your financial adviser about how you can be better protecting your business and the people you employ. If you want to find out more about how you can protect your business, you can visit our Rough Guide to Business Protection.

By Richard Kateley, Head of Intermediary Development at Legal & General.