Most business protection guides include sole traders when they are listing types of business structures that exist - however, few tend to truly explore their actual business needs.
Instead, the guides tend to concentrate more on partnerships, limited liability partnerships, and limited companies, probably because these structures tend to lend themselves more readily to the idea of ownership protection (they also tend to be larger businesses, so there may indeed be more to talk about, typically).
Either way, a first-time reader of one of these guides could be forgiven for thinking that sole traders don't need business protection. So are they right?
Well, for bona fide 'one-man band' businesses, they may indeed be, but there are plenty of sole proprietors who employ numerous people and whose business would suffer if some of them were suddenly absent as a result of long-term illness or death.
So if they have key employees then, just like any other business, there is a real need to cover the financial risk of losing them.
Take the owner of a small engineering firm, whose chief designer (or accounts manager, say) dies unexpectedly. There is a real danger that the business will suffer as a result, and the impact will likely be felt across both the employed workforce and the owner's immediate family if there is no protection in place to pay wages or to replace lost profits.
If the business's bank feels exposed, it may look to call in the overdraft. If workers feel vulnerable, they may start looking elsewhere for employment, taking valuable skills and knowledge with them. If trade creditors get wind that all is not well, they may require payment in advance, where they had previously offered time to pay.
Before long, the business could unravel and our sole proprietor may find themselves having to sell or re-mortgage their home in order to deal with the consequences. So if the death of a key employee could lead to the loss of your own lifestyle and even your home, wouldn't you want to be offered the chance of insuring against that?
And what if the owner dies or has a stroke?
- How would the business overdraft be repaid?
- How would trade creditors be paid off?
- If the business had to be closed down, any employees may be eligible for redundancy pay - where would that come from?
- How would leases on premises and the landlords be dealt with?
Unfortunately, most sole proprietors do not have life insurance or critical illness cover in place that specifically addresses these needs, so they will have to be met from any family protection policies. Clearly, this will have an undesired impact on any surviving spouse/partner, children and other dependent relatives.
So let's not forget our sole proprietors and let's make sure that their families get the protection they deserve.
Paul McDowell is a business account manager at Zurich
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