Yet, research by LV= shows just 10% of small and medium sized enterprises (SMEs) have protection, leaving almost 4 million businesses financially vulnerable.
Advisers tell us Business Protection can be more difficult to write compared to personal cover.
Larger cases slow down the underwriting process, and trusts can seem complicated. But, Business Protection is just simply life insurance and critical illness cover, written on the life a business owner, or key employee.
An easy way to position Business Protection with your clients
At LV=, we encourage advisers to think of Business Protection as insurance that safeguards three core business elements:
Ownership - If a partner or shareholder dies (or is diagnosed with a critical illness), the proceeds help the remaining owners buy the affected business shares.
Without protection, the surviving owners could lose control of the business, impacting ongoing success. Business Protection to protect ownership is written as Share or Partnership Protection.
Profit - If a business loses a key person who influences revenue, the policy gives the firm a cash injection, helping replace lost profits and possibly recruit a replacement. Key Person cover can be used to protect profits.
Debt – Key Person cover can also be used to clear debt (sometimes called loan protection). Without a cash injection, investors and creditors (like the bank) may call in debts they think the business can’t pay them off.
Not to be forgotten, Relevant Life Cover is a tax-efficient life insurance policy, allowing SMEs to offer death-in-service benefits to their staff.
Build your credibility
Before meeting with clients, it’s important to understand the different legal business structures, as this will influence how you write the cover. Having a basic understanding of your client’s business will also demonstrate your credibility and give your advice further kudos.
Sole traders (or the self-employed)
This is the simplest type of business, which is owned and controlled by one person (who might have staff). If your client’s business is new, they’re likely to be a sole trader as most firms start-up in this way.
The sole trader is personally responsible for all debts – if they die, this is inherited by their family. Key Person cover should be used to protect profits and pay off loans.
Some advisers struggle to find Business Protection clients, but with more than 4.6 million self-employed people in the UK, it’s possible you have a lucrative back book.
Traditional or ordinary partnerships
This is a business owned by one or more partners, working together with a view to make a profit. Like sole traders, the partners are personally liable for all business debt, so Key Person cover should be considered as well as partnership protection.
Limited Liability Partnerships (LLPs)