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Tap into big business by protecting Britain’s small businesses

23 November 2015 | LV= commentary


How many of your clients are small business owners?

Business has changed over the years. Over 5.4million private businesses now operate in the UK(1), up by more than 50% compared to the turn of the century.

And small business is definitely big business. Most private sector businesses are very small in size yet contribute to nearly half of all UK private sector turnover. 62% are sole proprietorships and 99.3% employ 0-49 people(1).

Over 8 million people in the UK are business owners or work in a firm employing less than 10 people(1) – to put that in perspective that’s 1 in 4 of the working population. And probably a large chunk of your existing client base.

The number of small businesses continues to grow year on year. That’s all rosy, but what happens to a business - and the people within and around it - when disaster strikes?

Business owners already protect many of the important things that keep the business running smoothly, like property, fleets and stock. Yet the most valuable asset to any business is its people, as without them, a company’s survival can be at serious risk.

Protecting people should be an integral part of any business plan

According to LV=, research shows just 10% of small and medium sized enterprises (SMEs) have protection(2), leaving almost 4 million businesses financially vulnerable.

And the reasons business owners claim when dismissing or putting off life insurance will strike a familiar chord… they don’t’ have time, they don’t see the need, they consider it expensive and fear it won’t pay out.

And advisers tell us Business Protection can be more difficult to write compared to personal cover. Larger cases slow down the underwriting process, and trusts can seem complicated.

But, Business Protection is just simply life insurance and critical illness cover, written on the life a business owner, or key employee.

An easy way to position Business Protection with your clients

At LV=, we encourage advisers to think of Business Protection as insurance that safeguards three core business elements:

Ownership - If a partner or shareholder dies (or is diagnosed with a critical illness), the proceeds help the remaining owners buy the affected business shares.

Without protection, the surviving owners could lose control of the business, impacting ongoing success. Business Protection to protect ownership is written as Share or Partnership Protection.

Profit - If a business loses a key person who influences revenue, the policy gives the firm a cash injection, helping replace lost profits and possibly recruit a replacement. Key Person cover can be used to protect profits.

Debt – Key Person cover can also be used to clear debt (sometimes called loan protection). Without a cash injection, investors and creditors (like the bank) may call in debts they think the business can’t pay them off.

Not to be forgotten, Relevant Life Cover is a tax-efficient life insurance policy, allowing SMEs to offer death-in-service benefits to their staff.

Building your credibility… know your client

Before meeting with clients, it is important to understand the different legal business structures, as this will influence how you write the cover. Having a basic understanding of your client’s business will also demonstrate your credibility and give your advice further kudos.

Sole traders (or the self-employed) - This is the simplest type of business, which is owned and controlled by one person (who might have staff). If your client’s business is new, they’re likely to be a sole trader as most firms start-up in this way.

The sole trader is personally responsible for all debts – if they die, this is inherited by their family.

Key Person cover should be used to protect profits and pay off loans.

Some advisers struggle to find Business Protection clients, but with approximately 4.6 million self-employed people in the UK, it’s possible you have a lucrative back book.

Traditional or ordinary partnerships - This is a business owned by one or more partners, working together with a view to make a profit. Like sole traders, the partners are personally liable for all business debt, so Key Person cover should be considered as well as partnership protection.

Limited Liability Partnerships (LLPs) - Unlike sole traders and partnerships, the owners are only responsible for the amount of money they’ve invested into the business.

LLPs can own property, like an insurance policy, and Key Person cover can be used to protect profits or pay off debt.

Partnership Protection can also safeguard ownership.

Limited companies - These are companies owned by shareholders and run by directors. Key Person cover can sustain profits or clear debt, and Share Protection can protect ownership.

Taking the hard work out of Business Protection

We know even the most experienced adviser has questions from time to time, so at LV= we have invested in comprehensive Business Protection training for all our service teams.

We can advise you on how to write the cover and which trust forms to use. Our flexible approach to underwriting and generous financial limits can help you write the cover faster, even with larger cases.

Did you know we only need financial evidence for life insurance above £2.5 million?

A tool to handle ‘it won’t happen to me’

Client apathy isn’t unique to personal protection. Our research shows 29% of businesses don’t think they need protection, despite almost a quarter of firms with cover have made a claim.

If you find it challenging to convince your clients about the need and value of protection, then check out the LV= Business Risk Calculator.

This is the only tool that can help you calculate the risk of business owners (and key people) dying or being diagnosed with a critical illness before retirement or over a chosen period.

The results also show the financial impact on the business, and are particularly powerful at group level when talking about Share and Partnership Protection.

And there’s more. To support your recommendation further, LV= has developed jargon-free, client-facing literature to help you introduce and explain Business Protection. And we’ve kept our business and personal cover policy conditions completely separate, as we think you (and your clients) will find this approach easier to understand.

Extra protection that makes a real difference to running a business

Running a business is difficult enough, without having to worry about legal issues. SME’s rank their top two regulatory challenges as employment regulations (37%) and health and safety (28%).

And in the absence of in-house experts, seeking legal advice can be expensive.

68% of businesses that pay for comparable services find them valuable(2). The going rate can start from around £15 a month, but the cost of not having legal advice when a business needs it could cost thousands, or even kill the business for good.

At LV=, we’ve partnered with a firm of business solicitors to offer business clients access to a free business legal advice line. This 24/7 service is available to all business owners who take out LV= Business Protection and offers advice on a number of commercial issues, including:

HR legislation - clients can use the advice line to help them understand the legal obligations between an employer and employee.

Health and safety issues - Business owners are liable for the health, safety and welfare of their employees, customers and suppliers, so it's important they understand their legal responsibilities.

Commercial disputes - Resolving commercial disputes early can minimise costs and protect long-term business relationships. Clients can get practical advice on a wide-range of commercial disputes, such as the late delivery of goods or tenancy disagreements.

Advice on contracts - Contracts are a part of every business, ranging from simple agreements with a water dispenser supplier, through to large orders with major distributors. Disputes over contracts can result in expensive legal fees, but with LV= Business Care, your clients can speak to a contract law specialist as and when they need to.

The advice given can help your clients understand their legal position and allow them to handle smaller disputes themselves. Our legal experts will also advise when it's appropriate to employ a solicitor.

Time to tap into big business by protecting Britain’s small businesses?

It’s easy to say, but protecting business clients is worth the time and effort.

With a little time (and support from us) we’re certain Business Protection will become a valuable part of your own business (if it isn’t already) and we hope that the refreshing approach from LV= offers a compelling choice for you and your clients.

You can find out more about LV= Business Protection at LV.com/businessprotection


1 ONS Business Population Estimates Report 2015

2 LV= research among business owners 2015

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