51% of SME business owners would use their own personal wealth to support their company if a fellow business owner were to die unexpectedly, but 25% would have to  rely on their business’s cash reserves, according to the latest iteration of Legal & General’s ‘State of the Nation’ research.

The findings also revealed that while 37% would expect to purchase the business owner’s shares in this scenario, 47% have no specific arrangements to transfer these shares. A further 20% of business owners have no will or instructions about their shares at all, leading to their business facing uncertainty at a critical time .

Legal & General surveyed over 800 small and medium-sized businesses to explore the value that business protection offers SMEs. The findings underscore the importance of products like share protection in particular, as they can be the vital difference between retaining the company in the event of an owner dying, losing complete control of the business or, in the worse case scenario, the business closing.

A share protection policy gives the remaining partners, directors or members of a business the funds to remain in control of the company following the death of an owner. Unless share protection is in place, the owner’s share in the company may be passed to their family, meaning the surviving owners could lose control of their proportion, or in some cases, all of the business.

73% of SMEs that took out a business protection policy did so after seeking advice from an intermediary, so there is a clear need for advice in this area. 71% of SMEs  that had sought advice had a policy that would enable them to buy back shares if a director passed away, compared to only 52% of SMEs that did not use an adviser.

Richard Kateley, head of intermediary development at Legal & General, said: “It’s clear that losing a business owner would be a devastating blow for most SMEs, so the question remains – why do so many companies remain unprotected? In many cases, the simple answer is that these businesses just haven’t considered it. There is a significant lack of awareness around the vital role that business protection insurance can play to help manage the impact of a business owner becoming critically ill or dying.

“As our research shows, SME owners who use a financial adviser are much more likely to have a business protection policy such as Share Protection because they have a far better awareness of the risks and have continuity plans or protection policies in place to mitigate them. Small businesses are vital to Britain’s economy. I would encourage more business  to seek advice and find out how this vital protection can help them manage the potentially devastating financial impact of a business owner  dying or falling ill.”