12 Days of Christmas - Day 4, Small business cover

On the fourth day of Christmas

Cura gave to me

Small business cover

Business insurance is something that a lot of small business owner’s get bombarded with. Public liability, professional indemnity buildings and contents insurance, to name but a few. The essentials that are needed and the thought of more insurance can be a bit of a pain.

But there are some insurances that aren’t always at the forefront of a small business owner’s mind, that are so important and could end up being used far more than these others. Small and medium sized businesses count for the majority of businesses within the UK, with most of them having less than 10 employees in total. 

The biggest question you may have is ‘Why should I pay more for insurance that isn’t essential’? 

Which leads me to ask a few important questions. 

• If you have 10 employees and 4 are out of work ill for a few days or even weeks, will your business still be able to run efficiently? 
  
• Do you have any key people that your business absolutely relies on? How would your business run if this person needed to be off work for months while they recover from a serious condition such as a heart attack, cancer or stroke? 
  
• How would your business cope if you pass away? 
  
  

Realistically, most businesses would suffer in this situation.

What if one of your employees becomes ill?

Taking out an Executive Income Protection policy covering your employees might not initially sound like it will benefit the business directly, but it certainly can. Executive income protection provides much needed and appreciated financial protection as it replaces a person’s income if they’re unable to work due to illness. The need for insurances like income protection has become even more evident during the pandemic, when many people have been too ill to work and a lot of businesses have been unable to pay them their regular wages.

Having executive income protection in place protects the business from having to pay any sick pay to a key employee, as the insurer will pay the employer a portion of the person’s wages, to then be paid to the employee. This can help your business financially if you’re having to find a temporary replacement, as you wouldn’t be paying the wages of two employees. You’re basically insuring a person’s wage.

Why you need to protect your people, to protect you

A lot of research is done into small and medium sized businesses within the UK. From 500 surveyed businesses, it was found 94% were able to recognise that they have a key person within the business, but many don’t realise that 70% of small and medium sized businesses within the UK would cease trading within only 2 years due to the loss of their key person.

Over a third of businesses identified one of their top three risks being an owner or key person becoming critically ill and unable to work as a result. Over half of the businesses surveyed said that their top business risk would be the death of an owner or key person.

Not only could the loss of a key person affect the efficiency of the business by being one person down, it can also have a knock on effect on your reputation, affect the attitude of your creditors and also affect cash flow. Though 70% of small and medium sized businesses think that they wouldn’t last more than 2 years, 59% who took part in the survey actually didn’t think they would last more than 12 months. 

A key person policy is also a great option to protect your business financially. This is a policy paid for by the business, to protect a key person. A key person policy would pay out a claim if a key person was to become critically ill or die. The money can then be used to find a replacement and ensure the business can keep trading as efficiently as possible.

But is it worth it for the random chance that someone I employ dies

On top of the pay out if your policy was to be claimed on, protection policies also tend to come with added benefits. These things can include

• 24/7 remote access to GPs.
• Second medical opinion services
• Rehabilitation support
• Tailored nutritional advice plans
• Exercise plans

A business owner can definitely be a key person, but it doesn’t have to stop there. A key person could also be a person with a certain set of skills, experience or knowledge which help your business function. This could be owners of the business, or managers, managing directors, specialists, research and development staff, technical experts, the list goes on.

A common misconception is over the price of a protection policy, but they can actually be much more affordable than you may think. It could be that you’re thinking I’m just the owner of a small company and there are only 5 employees, it’s not worth it. But really, the smaller the business, the more you rely on your employees, and it could be that they’re much harder to replace if they have a more specific role within the business.

Case studies

• Executive Income Protection – a company needed to arrange some income protection for one of their team. For a 44 year old gentleman we arranged increasing cover of £3,300 protection per month, to his anticipated retirement age of 63, with the possibility for a claim to pay his income all the way to age 63. The monthly premium was £72.48 per month, and this was able to offset against the company’s corporation tax.
  
  
• Key Person Cover – we spoke to a company that needed some life insurance in case one of their key employees passed away. These policies are often arranged as a short-term renewable policy of 5 years, as key people do change as businesses grow. For this 36 year old man we were able to arrange for the company to receive £600,000 if he were to pass away, for a monthly premium of £16.80. This policy premium can also be offset against the company’s corporation tax bill.

Business cover can be overlooked so easily, but putting the protection in place can also be quite straightforward if you use the services of a protection adviser. Even if you’re just wanting to know a little bit more about your options before committing to anything, it’s definitely worth discussing and finding out the true benefits.

Resources

adviser.legalandgeneral.com. (2021). State of the Nation | Legal & General. [online] Available at: https://adviser.legalandgeneral.com/l/689583/2021-09-22/m2p3g [Accessed 28 Oct. 2021].