COVER recently hosted an ‘Adviser Academy' with Legal & General on business protection. Fiona Murphy shares three top tips from the training session to help advisers grow their business protection portfolios and educate both potential and existing clients.
1) There's more to life than just relevant life
Richard Kateley, head of specialist protection at Legal & General said: "There are four main types of business protection: debt protection, key person: profit protection and share protection and relevant life, which is more of a family protection plan and a great product for getting into the marketplace.
"People are selling relevant life plans, sales have soared and they're now outselling all three of the others put together but advisers aren't moving onto the rest of the market, which is a real missed opportunity.
"If you've saved a company director 50% on his life insurance, you should go in there and talk about his key people, ownership and debt in the business. It should be an automatic referral back."
2) But relevant life is a question of trust...and people sometimes forget trusts
Kateley said: "HMRC rules say that benefits can be paid to an individual or charity. It can also be paid to a trust. This was put in place to make sure it wasn't treated like a cheap version of key man insurance for a company. This is a family protection policy.
"The main reason it can be taken out is not tax avoidance, but it can be tax efficient.
"We all know that putting financial policies in trust is good financial practice but only 9% of policies in the UK are put in trust. With a relevant life plan, it won't work unless you put it in trust.
"A normal life policy will still work but it may go through probate. A relevant life plan will not work unless it is put into a trust. This is because the wrong people own the benefit.
"If I had forgotten to put a relevant life plan in trust, who owns that policy? The company does. The provider would have to pay the benefits to the company and they would have to treat this like a trading receipt and it would be tax as such.
"The HMRC could also ask for the return of the tax benefits on the premium as it no longer meets the RLP rules. The result of all this could mean the family get nothing."
3) The opportunity is huge and dormant
Kateley said: "In the last 6 years L&G has done research into the business protection market. We've gone out across the UK and spoken to business owners asking them there understanding of the business protection market, to be fair their understanding of the market isn't there.
"No-one is talking to them about it. Very few accountants are involved in the marketplace and very few financial advisers do, so very few business owners ask themselves ‘what will happen if I die or if we lose a key person in the business?'
"We spoke to 800 business owners across the UK; we limited the numbers of sole traders just 25% of the segment because sole traders represent 62% of the entire SME market, so they would have skewed the figures a lot.
"The youngest business was 4 months old and the oldest was 42 years old. Of the 5.4 million businesses in the UK 99% are SMEs with less than 250 employees and 95% of those have less than ten employees. They will really suffer if they lose one person as that would be 10% of their workforce.
"If you don't have any business clients in your portfolio, you will probably know someone that works for one or you will work for one. It's quite often worthwhile starting at home as many advisers do not have business protection themselves.
"The biggest thing I got out of our research was that there wasn't negativity towards taking out business protection, people just didn't know about it. Of the people who had taken out business protection, 87% said it was because their adviser recommended it.
"They don't wake up in the morning and want to buy business protection. Do not expect people to come knocking on your door and say that they want key man insurance or share protection.
"The biggest hint that I can give you, is if you want to get out into this marketplace, get out there and be proactive."