Rising costs are hitting many businesses hard and many are urgently looking to find savings which can better protect their profit margins. One thing that can be cut in order to save business costs is insurance premiums. But, in order to understand if your business could get by without certain forms of business insurance, it’s important to understand the potential risks involved should the worst happen to you as a business owner, a director or key employee.
As a result, business owners are likely to look to insurance that they may not think is that important at the moment as a way of reducing costs. However, before you remove or cancel an insurance plan, it’s important to remember the reasons why you took it out in the first place. Let’s take a look at whether or not your business could get by without insurance.
Why Do Businesses Need Insurance?
There are 5 main types of business insurance which are designed to offer protection should something happen to people within your business.
- Shareholder Protection – ensures any shareholders keep hold of company control should one of them pass away.
- Loan Protection – this insurance helps you to meet financial commitments if you become seriously ill or die.
- Key Person Insurance – this protects profits from being impacted should a key person within your business die or become ill.
- Relevant Life Insurance – relevant life insurance is a tax-efficient life insurance policy which can be taken out for the company and pays out a tax-free lump sum to the employee’s beneficiaries if they pass away.
- Group Schemes – this can include group protection, private medical insurance or critical illness cover
These policies, typically, tend to be different from other policies which you can use in your personal life, such as car and home contents insurance. These policies can often be switched regularly as a way of keeping premiums down, however, most business life insurance plans tend to be long term and have fewer price fluctuations, so it can make comparing prices regularly and switching more difficult.
What Are The Dangers Of Cancelling Insurance?
When your business costs are increasing, it’s only natural that as a business owner, you look at ways to reduce these costs. But, after reviewing your insurance policies, you need to consider why you decided to take out life insurance policies in the first place. Most financial planners would recommend that you don’t take insurance policies as a “nice thing to have”. It should be there for a reason, so given that you were well advised in regard to your finances, it will likely be counterproductive to cancel your insurance policies.
As well as this, if you cancel your business life insurance, you are risking financial implications for your business should a key person become seriously ill or pass away whilst the cover isn’t in place.
If you are thinking about cancelling a policy, only to repurchase later, then this will likely work out more expensive. Should you suffer any medical issues inbetween this gap in insurance, then you may no longer qualify for certain insurance cover.
Reviewing Your Insurance Needs
As you get older, you will find that insurance premiums which pay out on death or inability to work become higher as the risk of becoming ill increases. It’s likely that you won’t be able to match any current like-for-like policies for less.
Around 59% of businesses would stop operating within 12 months should a key person within that business die or become unable to work, yet many businesses don’t have key person insurance in place. Almost 64% of businesses also haven’t heard of relevant life insurance, despite it providing tax-efficient employee benefits.
You may actually find that, on review, your business could be better off financially with the addition of new insurance policies. Remember, before taking out any new policies, seek the advice of a business insurance broker, as they will be able to source the best policies, suited to your business needs.