Life Insurance  

Two out of five businesses have no life cover

Two out of five businesses have no life cover

Nearly 40 per cent of businesses have no life insurance policies in place to help buy the shares of a recently deceased business owner, according to Legal & General.

The provider interviewed 826 senior staff, finding 37 per cent of businesses (with two or more owners) did not have this form of cover, with 57 per cent of small businesses stating this was the case within their company.

The research also revealed that 30 per cent of business owners have no will and no specific instruction in place on what should happen with their shares upon death.

Digging deeper, 34 per cent had a will in which their shares were left to a named beneficiary, while a further 27 per cent had a will but no specific share instructions.

L&G’s specialist protection team wanted to highlight how important it is to businesses that the owner or owners’ shares are in a position to be passed on should they die, as if they end up in probate it could potentially paralyse a business and cease it trading.

The group noted that 9 per cent of the business owners surveyed said their business would cease to trade if they or a fellow owner died, along with 16 per cent who said they did not know what would happen.

Of that 16 per cent, 60 per cent said they had “never really thought about it” and a further 14 per cent said the risks had “never been explained” to them, showing scope for discussions with an adviser.

Furthermore, nearly a third of limited companies and over a quarter of partnerships had not reviewed their articles of association or partnership agreement respectively since the business was started.

Richard Kateley, head of specialist protection at L&G, explained that having shares tied up in probate is a destabilising position for a small business and encouraged all owners to review their wills, articles of association and partnership agreements as soon as they can.

“There is an opportunity here for advisers to speak with business owners about their articles or agreements given a significant proportion of those we spoke with had not reviewed them since the business was started, with a combined further 18 per cent having not reviewed them for between three and five years,” he stated.

“This is a vitally important issue as if a business fails due to shares unable to be bought or caught in probate, it is not just the remaining business owners who will be without a job but sadly also all of their employees.”

peter.walker@ft.com