According to Legal & General’s most recent ‘State of the Nation’ research, 25% of small-to-medium enterprise (SME) business owners would rely on their business’ cash reserves if a fellow business owner passed away unexpectedly, while 51% would use their own personal wealth.
The findings also revealed that while 37% would expect to purchase the business owner’s shares in this scenario, 47% have no specific arrangements in place to transfer these shares.
The survey of 800 small business owners showed that one in five (20%) business owners said they have no will or any instructions about their shares at all.
The findings highlight the need for business protection, especially share protection which gives the remaining partners, directors or members of a business the funds to remain in control of the company following the death of an owner. Without this type of protection in place, the owner’s share in the company may be passed to their family, potentially putting the control of the business in their hands.
“It’s clear that losing a business owner would be a devastating blow for most SMEs, so the question remains – why do so many companies remain unprotected?” said Richard Kateley, head of intermediary development at Legal & General. “In many cases, the simple answer is that these businesses just haven’t considered it. There is a significant lack of awareness around the vital role that business protection insurance can play to help manage the impact of a business owner becoming critically ill or dying.
He added: “Small businesses are vital to Britain’s economy. I would encourage more businesses to seek advice and find out how this vital protection can help them manage the potentially devastating financial impact of a business owner dying or falling ill.”
L&G’s research shows that nearly three-quarters (73%) of SMEs that took out a business protection policy did so after seeking advice from an intermediary.
Seven in 10 SMEs (71%) that had sought advice had a policy that would enable them to buy back shares if a director passed away, compared to only half (52%) of SMEs that did not use an adviser.