A lack of SME businesses have a business protection policy in place to cover themselves when a business owner falls ill or dies unexpectedly, Legal & General’s ‘State of the Nation’ research has showed.
Over half (51%) of SME business owners would use their own personal wealth to support their company if a fellow business owner were to die unexpectedly.
More than a quarter (25%) would have to rely on their business’ cash reserves.
Some 47% have no specific arrangements to transfer the business owner’s shares in this scenario.
A further one in five (20%) business owners have no will or instructions about their shares at all, leading to their business facing uncertainty at a critical time.
Richard Kateley, head of intermediary development at Legal & General, said: “It’s clear that losing a business owner would be a devastating blow for most SMEs, so the question remains – why do so many companies remain unprotected?
“In many cases, the simple answer is that these businesses just haven’t considered it.
“There is a significant lack of awareness around the vital role that business protection insurance can play to help manage the impact of a business owner becoming critically ill or dying.”
Nearly three-quarters (73%) of SMEs that took out a business protection policy did so after seeking advice from an intermediary.
Many SMEs (71%) that had sought advice had a policy that would enable them to buy back shares if a director passed away, compared to only half (52%) of SMEs that did not use an adviser.
Kateley added: “As our research shows, SME owners who use a financial adviser are much more likely to have a business protection policy such as share protection because they have a far better awareness of the risks and have continuity plans or protection policies in place to mitigate them.
“Small businesses are vital to Britain’s economy.
“I would encourage more business to seek advice and find out how this vital protection can help them manage the potentially devastating financial impact of a business owner dying or falling ill.”