As the last couple of years have shown us, unexpected events can happen at any time. Whether that’s a disruption to the operation of your business, losing a key member of staff to illness, or physical damage caused by flooding or fire, it’s vital that you mitigate the risk to your enterprise.
If you have business cover in place, great! Taking proactive steps to arrange the right protection can help you to ensure the ongoing success of your company, whatever happens.
But when was the last time you reviewed the cover you have, and whether it remains appropriate for your needs?
If it has been some time, or you’ve never reviewed your cover, you could be putting your business at risk. Here are five reasons why.
1. You’re underinsured
If it’s been a few years since you arranged your cover, it’s likely your business has grown in that time. So, you could easily discover that you don’t have enough cover for your needs.
As a simple example, if you’ve expanded since you put cover in place, you might have insufficient cover for your business contents. This can lead to difficulties should you need to claim against your policy, as the claim might significantly exceed the sum assured. You may then only receive a portion of your claim, leaving you out of pocket.
Entrepreneurs also need to consider the ongoing value of the business.
Here’s an example. Five years ago, the value of Richard, Sarah, and Chloe’s business was £900,000. The three were equal shareholders. They took out shareholder protection on each of the three owners of the business (written in a suitable trust) to cover the value of the individual’s shares at that time (£300,000).
In the intervening five years, the value of the business doubled. Then, sadly, Chloe passed away and Richard and Sarah made a claim on her cover. The shareholder protection provided £300,000 – but this was only half the money they needed to purchase Chloe’s shares. Richard and Sarah had to find an additional £300,000 to buy Chloe’s shares from her beneficiaries in order to retain control of the business.
Underinsurance can be a huge risk to a business, as it could mean you don’t receive the financial support you need when you come to make a claim. So, regularly reviewing your levels of cover can give you the peace of mind that you’re adequately protected.
2. Your key people may have changed
Whatever your business, it’s likely that you employ certain staff who are key to the successful operation of your company. They might have:
- Specialist or technical knowledge
- Specific skills or experience
- Long-standing client relationships.
If one of these people were to pass away, your business could be hit hard. It may result in a loss of profit, the need to hire and train a replacement, or a loss of confidence if that person is no longer around to provide their experience and expertise.
Indeed, according to Legal & General research, 30% of businesses would cease trading immediately if they lost a key member of staff, while a further 24% said they would have to fold within six months.
Key person insurance can provide financial support if a vital colleague is diagnosed with a serious illness or passes away. However, you need to regularly review your cover to make sure you are protecting the right people in the business. They might not be the same people they were when you initially put your cover in place!
3. Your business (and the risks) will have evolved
Your business, and the environment in which you operate, evolve over time. Your business might increase in value, take over a rival, expand into more locations, introduce new products and services, or hire more staff.
As this happens, threats and opportunities will arise, as will the potential risks you need to insure yourself against.
- In the early years of the business your priority might be to insure the key people the business relies on
- You might then need to think about how you’d repay any debts if an owner died
- As your business grows you might need to think about other types of risk, such as cybersecurity, indemnity insurance, or shareholder protection.
Reviewing your cover regularly ensures you’re always mitigating all the risks your business faces as it grows.
4. Your cover may not be tax-efficient
When thinking about tax efficiency, your protection might not be the first thing you consider. However, many business owners don’t realise that protection and insurance can be tax-deductible expenses.
If your business is taking out a policy on your employee, the insurance is for loss of profits resulting from the loss of that key employee, and the insurance policy is either annual or short term, your business may be allowed tax relief on the premiums.
Additionally, if you have arranged any life insurance yourself, you probably pay it from your after-tax income.
Instead, consider a Relevant Life policy. It pays out a lump sum if you (or an employee) are diagnosed with a terminal illness or passes away. Arranging it through the business makes it a tax-deductible expense, potentially saving you a significant sum.
Putting this in place for some or all of your employees can help your business to save money while providing access to a great employee benefit. It’s particularly useful for high earners and key employees as any payment doesn’t count towards the Lifetime Allowance.
Tax efficiency is another reason why regularly reviewing your cover with a financial planner can be beneficial.
5. Insurance has evolved, and there may be superior cover available
Just as your business evolves, so does the cover available. As an example, since the first critical illness policies were introduced in the UK, the range of illnesses covered by these contracts, and the definitions of illnesses, have changed almost beyond recognition.
The same is true of many other types of cover. So, reviewing your protection could mean you’ll benefit from enhanced levels of cover at little to no extra cost.
The key reason you put business protection in place is that you want the peace of mind it will pay out if you ever need to make a claim. So, choosing good quality, comprehensive cover over policies you have held for years or decades could well pay dividends.
We can help find the right protection for you
We have wide experience of working with business owners and so we’re ideally placed to help you to review the protection you have in place. We can ensure all the risks your business faces are considered, and that cover is arranged in the most tax-efficient and beneficial way. To find out more, email firstname.lastname@example.org or call 020 7467 2700.
This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.