Protection 

Bosses least-protected asset for UK business

Bosses least-protected asset for UK business

Thousands of senior decision-makers in Britain's small businesses are unaware of the damage losing a key person could do to their business.

According to research carried out by insurer Royal London among small to medium-sized businesses (SMEs) in Britain, only 26 per cent of SMEs have key person insurance cover.

The study, carried out by YouGov on behalf of Royal London among 732 company owners, whose firms have between one and 249 employees, found the majority of owners did not see the need to insure against the loss of a key person.

This is despite 30 per cent of all firms having experienced the loss of a senior staff member or key employee for three or more months, due to serious illness.

According to Ian Smart, product architect at Royal London, smaller businesses would face the biggest impact if they lost a key employee.

Yet the study also found that 57 per cent of businesses with less than 50 employees, who are aware of key person insurance, don’t think it is important.

Larger SMEs - with 50 to 249 employees - are more likely to have experienced the loss of a key employee to serious illness or death and nearly half (47 per cent) have taken out a policy.

Mr Smart said over half (51 per cent) of SMEs said that no-one had discussed business protection insurance or recommended that they take out a policy.

Mr Smart said: "In the UK there’s a record 5.7m SME businesses. Losing a key employee through serious injury, illness or death can have a serious impact on the livelihood of a business.

“People are the most valuable asset of any business, but SMEs are more likely to insure their premises and stock than their key people."

As reported by FTAdviser in last week's Guide to Business Protection, business owners and entrepreneurs are well-prepared in that they have already ensured the home or office space will be insured against fire, loss or theft.

When it comes to other benefits and expenses, pensions are paid out, professional indemnity is paid for, along with all the various regulatory fees and taxes that apply, regardless of the industry in which one works.

But insuring against the loss of the owner or a key employee is still under the radar of most British businesses.

Johnny Timpson, protection specialist at Scottish Widows, said: "Being self-employed, you have no entitlements to statutory sick pay, limited entitlement to working-age welfare benefits, and will be unserved by Universal Credit, as it does not support the self-employed and those with fluctuating earnings particularly well.”

Tom Conner, director of insurance for Drewberry, commented: "Business protection is about the survival of the firm should the worst happen."

What is Key Person Cover?

  • If a key person dies or is diagnosed with a critical illness the business will receive a lump sum payment.
  • In a small business this is usually the owner, the founders or key employees. 
  • For most policies at most companies, KPC is a benefit that qualifies for tax relief.
  • The lump sum can be used in various ways, including recruiting a temporary or permanent replacement or to train another employee to step into the role.

Despite the risks to the business should a self-employed business owner fall sick, or lose a key sales person through critical illness, Royal London's research showed there was far too little awareness of how KPC could help mitigate these problems.

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