Underinsurance could leave your business vulnerable to these 4 risks
Business insurance is a vital part of protecting yourself, your staff, and your business. Yet research has found that an alarming number of small or medium-sized enterprises (SMEs) in the UK don’t have any insurance.
SME Today has shared findings that 44% of SMEs in the UK – amounting to roughly 2.4 million businesses – have no commercial insurance. This has increased by 40% since 2021.
Inadequate insurance could put you and your business at risk of serious financial difficulties. Read on to learn more about how you can mitigate the financial impact of future challenges.
Many entrepreneurs feel their business is too small to need insurance
According to the report, almost half (47%) of business owners who had no insurance felt that their business was too small to require protection. Other reasons included the fact that they work from home (42%) or that customers don’t visit their premises (34%).
Of those businesses who do have insurance, our anecdotal experience is that many will opt for policies such as building insurance, yet neglect to insure their own income – effectively protecting the eggs but not the golden goose.
This suggests that many business owners simply aren’t aware of the risks that they could be exposed to, and consequently, could find themselves in serious financial difficulty in the future.
4 risks your business could be exposed to if you don’t have commercial insurance
Aside from the insurance that is legally required of a business, such as employer’s liability insurance if you employ any staff, there are several policies that are a sensible thing to consider. This is because they can help to mitigate or remove the financial impact associated with a few risks that virtually every business could face.
1. A key person in your organisation could be unable to work or could pass away
In every business there are certain roles that are integral for ensuring the business runs as it needs to. It might be one of the directors of the firm, or it could be someone whose expertise and skill is critical for delivering the goods or services you provide to customers.
If one of these people is unable to work for a period of time due to injury or illness, or worse, passes away, it could affect your ability to run your business. In addition to risking a loss of income, recruiting a replacement who has the required skillset could prove both costly and time-consuming.
For these reasons, it’s sensible to take out key person insurance. If you were to lose one of the people on your team who is vital to the success of the business, you would receive a payout to help ease the associated financial pressures.
2. If a shareholder passes away, how would you buy back their shares?
If you have multiple shareholders in your business, it’s important to have clear processes about how shares are allocated, and what happens if one of the shareholders passes away.
This is where your articles of association come into play; the rules about how your organisation is run must be clear and agreed upon by all shareholders. In many cases, if a shareholder becomes terminally ill or dies, the remaining shareholders are required to buy the shares from them.
If you aren’t financially able to buy the shares, they could be passed on to a beneficiary, providing them with the opportunity to influence how your business is run, potentially against your wishes.
Shareholder protection could help to protect your business from this eventuality. The policy would provide a lump sum payout if one of your shareholders is diagnosed with a terminal illness or dies, enabling you to buy back the shares.
3. How would your family cope financially if you were to pass away?
While this risk isn’t unique to business owners, the added complexity of a business makes this question particularly prudent to consider. Having financial support in the form of a life insurance payout after your death can help your family to settle any outstanding debts and make other necessary arrangements.
Relevant life insurance allows you to provide life insurance for directors and employees of your company for a fraction of the cost that they might pay to arrange their own life cover. In doing so, if someone under the policy passes away or is diagnosed with a terminal illness, their family can receive a lump sum payout.
The cost of relevant life insurance premiums is usually tax-deductible, so it could help you to reduce your Corporation Tax bill.
Plus, offering this as a benefit to your employees demonstrates your values as an employer, potentially helping you to attract and retain high-quality staff members.
4. What if an employee had to leave as a result of financial or health difficulties?
While not every member of staff would be appropriate to insure as a key person, each team member has their part to play in your organisation. As a result, it can be costly and disruptive to the business if someone leaves or takes time off work for health reasons.
If an employee needs to take long-term sick leave, the stress caused by the loss in income can make it more difficult for them to recover from their illness.
As an employer, one of the things you can do to support your staff in maintaining good health and wellbeing is to take out group insurance. This can include income protection, critical illness cover, and life insurance.
By providing this financial protection to your employees, you could help them to avoid running into financial difficulty as a result of being unable to work due to illness or injury.
Get in touch
If you’d like to learn more about how you can protect your business, please get in touch. We can support you by assessing the risks you face as a business owner and provide a bespoke protection plan to address your needs.
Say hello to us at [email protected], call us on 0161 541 2826 or submit a contact form on our website.
Please note
Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.