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Personal Finance Society
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Are mortgage advisers missing a trick on business protection?

Mortgage Advisers have a great opportunity to offer business protection to company directors - a part of the market that remains untapped by many advisers.

Legal & General's 'The State of the Nation's SMEs' report , highlights some key trends in the business protection market as well as flagging the risks that Small businesses could face.

Over a third of UK's SME's have no insurance cover at all for their debts.

This is despite the fact that nearly 2/3 of businesses carry some form of debt, the average business owes nearly £350,000.*

If a key person were to die or become seriously ill, many small businesses could be left struggling to deal with the not just the loss or absence of the Individual, but they may also need to repay a debt in a hurry. Could they afford to do so?

What If the debt carries personal guarantees? Could this put the families and estates of both surviving and departing directors at risk?

The research revealed that access to the company directors is key, because where a business does have business protection insurance, 89% have it because they had been advised to do so by their Financial Adviser or Bank.

 In short, once the directors are made aware of the risks of unprotected debt, they usually do something about it!

Some debts are more risky than others - short-term financing or debt that must be repaid annually. The research revealed small businesses relying on credit card borrowing for amounts over £50k has rocketed from just 3% in 2011 to over 23% in 2015. Similarly, Directors injecting their own money into the businesses via a director Loan, for amounts over £50,000 have increased from 20% to 33%.

In the event of illness or death to a key person could the business afford repay these debts?

28% of the directors had no idea that their Director Loan Account needs to be repaid in the event of their death. This should be of particular interest to mortgage advisers as very often, directors making loans to the business do so using funds from a personal mortgage secured against their home.

The mortgage appointment then becomes an opportunity to talk about their wider protection needs including the business needs i.e. key person, partnership / shareholder cover or relevant life plans.

So how can an adviser help? They could suggest that the company takes out protection on the director, as a key person, thus enabling the Director Loan Account to be repaid to the estate, which in turn could be used to repay the mortgage debt.

The demand for advice is there - the majority of business owners we spoke to said that they did want to hear about business protection from financial professionals, Given the strong correlation that often exists between property assets and business assets for business owners, mortgage advisers are in an ideal position to spot the business protection opportunities when a mortgage is being used to put funds into a business

Richard Kateley, Head of Intermediary Development, Legal and General 


*All figures from L&G's "state of the Nation's SME's" research.