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SMEs are underinsured for critical illness, shows L&G study

Amy Loddington -
26th September 2017
protect business

More than 1 in every 4 UK SMEs could have claimed on a life insurance or Critical Illness Cover policy in the past, but just 12% of small businesses had an insurance policy in place, research from insurer Legal & General has shown today.

Of those business that lacked cover and which failed following a critical event, 80% of their owners said a business protection policy would have saved their business.
Legal & General interviewed over 800 small businesses as part of its ‘State of the Nation’s SMEs’ research, which aims to highlight the protection gap amongst SMEs and the importance of business protection.  Of those who successfully claimed (94), there were 83% (78) with a financial adviser – stressing the importance role of advice in raising awareness about business protection.
For those SMEs who had taken out a Business protection insurance policy, Legal & General’s research showed it had had a positive effect. Where there was a successful claim, more than half (56%) said the payment from the policy had saved their business, while some others struggled on but improtantly they still continued to trade. Only 13%  said their business still went onto fail.
By contrast, over three-quarters (77%) of the businesses which had no cover said they had suffered financially. Where these businesses had subsquently failed, the biggest factors were financial reasons, such as a loss of profits, struggling to meet debt repayments and issues over ownership. 80% of the owners of these businesses said a business protection policy would have saved their business.
Interestingly, when asked if having key person insurance would have helped to save their business, 87% said it would have definitely helped them to continue trading by covering the cost of replacing an employee and lost profits, as well as helping to pay off debts.  
Richard Kateley, Head of Intermediary Development at Legal & General, commented:

“Our research shows the important role business protection polices can play in helping to keep a business running after the death or critical illness of an owner or key employee. Receiving a payout from a successful claim can make all the difference in giving business owners a bit of breathing space to make the right decisions about the future, rather than having to make rushed decisions or having those decisions made for them.
“Unfortunately, as demonstrated by these findings, far too many businesses remain unprotected or even unware about key person insurance, business loan protection and potection for the ownership of a business. That is precisely why advice in this sector remains vital in helping businesses to realise the potential risks and benefits of protection. Interestingly of those who made a successfully claimed on a business policy, 83% had a financial adviser, demonstrating the  value that advisers can add to a business.

“Our focus throughout this research has been to equip intermediaries with the tools they need to confidently advise their clients on how business protection could make all the difference in helping their firm to survive the death or critical illness of an owner or key employee.”

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