Advisers must not ignore the value of business protection either for themselves or for their clients, Richard Kateley has claimed.
The head of specialist protection for Legal & General said he has often run training courses for advisers who not only have not recommended key person or similar cover to their corporate clients, but also have failed to take out business protection themselves.
He said: “Many company owners think about insuring their building and contents - insuring their ‘things’ but not about the people.
“It can be complicated, which is why advisers are invaluable in setting up key person cover, for example, but it is not as expensive as people think, and it can be crucial in making sure the business can continue.”
However, he added: “When I hosted an event for advisers to help them learn about selling business protection to their clients, only a few knew where their own articles of association were, and none of them had business protection themselves.
“Yet when we’ve surveyed small firms of all ilk in the past, 40 per cent of them admitted there was a high possibility of going out of business if they lost one key person.”
Earlier this year, L&G revealed 31 per cent of small and medium-sized enterprises had no cover in place to meet their debts.
The FTSE 100 insurer surveyed 850 SMEs at the end of 2014 and found although 57 per cent had taken out business borrowing, 31 per cent had no way of ensuring these debts could be paid off in the event the business owner or key person should die or fall critically ill.
Of those with an insurance policy, 89 per cent had taken it out because their financial adviser had made them aware of key person cover and its importance.
Last year, insurance consultancy F&TRC included business protection in its research tool to encourage more advisers to discuss this with clients.
Brian Spence, partner for adviser business consultancy Harrison Spence, said: “I do not think a lack of business protection is such a big issue for advisory firms.
“If you look at the average small, one-person advisory business, they do not make a large profit and the business value at the moment is based on a multiple of recurring income.
“So because it is a lifestyle business and not based on profits per se, and because they only have one single adviser, then they would not need various levels of business protection, such as key person cover.”
He said single-adviser firms generally need to protect themselves and their spouse, through critical illness or life cover, but added: “If you are a corporate IFA and have more than one or two partners, then you will need to consider business protection such as key person cover.
“As firms grow and take on more staff, then they need to have the appropriate protection in place and generally they will act professionally and make sure they have emergency cover, continuity cover and make sure the business can survive if a key individual became unable to work.”
