ProtectionApr 26 2017

Protection gap poses threat to half of SMEs

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Protection gap poses threat to half of SMEs

More than half of UK small and medium-sized enterprises (SMEs) would close within a year should a key employee die or become critically ill, new research has revealed.

Some 53 per cent said they would close after a critical event such as an employee’s death - an increase of 13 per cent on 2015, according to Legal & General’s state of the nation’s SMEs report, which surveyed more than 800 small businesses.

New companies (67 per cent) and sole traders (73 per cent) were the most likely to say they would not last beyond a year in the event of a death or other critical event.

Yet despite a widespread awareness of the risks, around a third (32 per cent) of SMEs said they had not even considered key person insurance, while another third (31 per cent) said they had not got round to looking into it.

A further 28 per cent said they thought cost would be an issue in taking out a key person policy.

Richard Kateley, head of intermediary development at Legal & General, said: “Many businesses insure what they can see and feel, such as their contents, property or vehicles, but many forget about a business’s most important asset - its people.

“For over half of the SMEs we surveyed to believe they would last less than a year should a key employee die or require a long absence due to a critical illness is worrying in itself; the fact that it is a risk that they have not considered or realised before is an even bigger worry. 

“It is vital that businesses consider protecting their future against such an eventuality and advisers can play a vital role in this.”

It is vital that businesses consider protecting their future against such an eventuality and advisers can play a vital role in this.Richard Kateley

Roy McLoughlin, associate director at London-based Cavendish Ware Wealth Management and Financial Planning, said: “Every time I read something like this it shows me that there is an education piece that needs to be performed by advisers to show how liable these companies are to deaths and critical illness.

“It goes hand in hand with the issue of succession planning – if a person dies, what happens to their shares?

“Everyone forgets that the UK is dominated by small companies, not large ones, and they often get forgotten as business prospects, even though they make the most loyal clients and give referrals.”

simon.allin@ft.com