More than Half of SMEs Potentially Could Close Within 12 Months If a Key Employee Died or Became Critically Ill

More than half of small and medium-sized enterprises (SMEs) in the UK could cease trading within a year if one of their key employees died or became critically ill, new research suggests.

According to the latest (fifth) edition of Legal & General’s State of the Nation’s SMEs report – which surveyed more than 800 small businesses – 53% of SMEs said they could close in under a year after the death/critical illness of a key person.

This is a 13% increase on the insurer’s 2015 survey.

Sole traders (73%) and new businesses (67%) were the most likely to say they could not survive beyond a year following the death or critical illness of a key employee.

However, despite being aware of the risks, almost a third (32%) of SMEs have never even considered key person insurance. Almost the same amount again (31%) said they had not got round to looking into key person insurance any further.

A further 28% said they had not taken out key person insurance because of the associated cost. Other reasons included it being too complicated or not having an adviser to help them.

Interestingly, the L&G survey also found that 39% of SMEs do not think that a key person dying or becoming critically ill would affect their company’s cash flow.

Forgetting their ‘most important assets’

Richard Kateley, head of intermediary development at Legal & General, said that while many businesses insure the things they can see and feel, such as their contents, property or vehicles, many forget about their most important assets: their people.

“For over half of the SMEs we surveyed to believe they could last less than a year should a key employee die or require a long absence due to a critical illness is worrying in itself; the fact that it is a risk that they have not considered or realised before is an even bigger worry.

“It is vital that businesses consider protecting their future against such an eventuality and advisers can play a vital role in this,” he said.

Kateley also warned about the levels of business borrowing, especially the reliance on unsecured lending sources, such as director loans or credit cards. He called upon the insurance industry to raise awareness among SMEs of the different types of business protection available.

Of the record 5.5 million private sector businesses in the UK in January 2016 some 99% of them were SMEs.

As the UK is dominated by these SMEs then advisers need to educate them on how liable their businesses are to be affected by deaths and/or critical illness. This is one of the areas we specialise in at Premier Choice Group.


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