Business protection life cover for older clients – who offers what?
Many advisers work with business owners who need some sort of business protection to protect their business if the worst happens. Some of these business owners requiring business life cover will be older or requiring cover for older employees that are crucial to the running of the business. So, it is useful for advisers to familarise themselves with the maximum age criteria that insurers apply upon entry and expiry of their policies. In this insight we examine the maximum age criteria that insurers offer for business protection life cover.
Despite the impression given by reality television shows like The Apprentice or Dragon’s Den, starting a viable business is not exclusively a younger person’s territory. According to Age UK, the number of self-employed people aged 65 and over has more than doubled in the last five years.
The reasons vary – some may simply have retired but become bored and decided to turn a hobby into a business. Others will have been made redundant – a particular hazard in the current economic environment due to Covid-19 – and found it difficult to get another job, despite employers having equal opportunities policies in place to comply with the Equality Act 2010.
Business life cover is desirable because if the business owner or key person dies, this can have a massive financial impact on the business. There might be loans to repay, salaries to settle, lost profits due to their absence and recruitment costs to find because a replacement is needed. If there are several partners in a business, the proceeds from life cover can help the remaining partners to buy out the deceased’s partner’s share from their estate.
But without cover, the remaining partners could lose control of the business and the deceased’s family could find themselves having to run a business they know nothing about. The financial knocks could even be hard enough to force a company to cease trading and this would affect the livelihoods of any business partners, shareholders and employees.
Research by Legal & General for its sixth Business Protection State of the Nation’s SMEs report, published last year, found that without business protection in place, 52 per cent of businesses would cease trading in under a year if a key person died or became critically ill. The report also found that the death of the owner would have the biggest impact on the business among 63 per cent of firms surveyed. And yet over 50 per cent of firms surveyed by the insurer did not have protection in place for a key person.
There is no denying the importance of having business protection, but smaller firms are at a greater risk if an owner or key person dies, because they don’t have the resources that bigger firms with HR and finance departments have to be able to cope with that loss. However, the irony is that smaller firms are less likely to have business protection in place and this is something that advisers can help to change by making more business owners aware of it.
Age is one of the factors that determine whether a business owner or key person can obtain business life cover and on what basis. This is because the older a person is, the more likely they are to become seriously ill or die. As the likelihood that the policy will pay out increases with age, this represents a bigger risk for the insurer. As a result, premiums also increase with age, but standalone life cover will be more affordable and will have a higher age limit than policies which also include critical-illness cover.
Looking at our table, it is clear that there is no consensus between providers as to where to pitch the maximum age at entry into a business protection life policy. Royal London comes top in providing cover at the highest maximum age across the market. At 88, it is three years higher than AIG, which has a cut-off point for entry at age 86.
The table also shows that Aviva and Legal & General’s offerings have the lowest maximum age at entry across the market (age 77). Two providers – LV= and Scottish Widows – have set the maximum age at entry to their plans at the same age, 79, but this is not a large enough number of insurers to take age 79 as the industry standard.
In contrast, there is less variation between insurers in relation to the maximum age a client can be at expiry. Half the insurers in our table – Legal & General, Royal London, Scottish Widows and Zurich – have set 89 as their maximum age at expiry. This is only a year off the highest maximum for expiry (age 90) which is available with AIG, Aviva and VitalityLife. At 84, LV= has the lowest maximum age at expiry.
Advisers dealing with firms that have older business owners or keypersons that require business life protection will need to look at which insurer best matches the age requirements of their clients and weigh up other features the plans offer.
If a client is in their 60s, for example, there is no need to limit their choice of insurer only to those which allow people in their 80s to take out a new plan. It is the maximum age at expiry that may be more relevant for a client in their 60s, as they may stay with the company well into their old age.
Where there is a need to take out cover at the higher age brackets, Royal London will cover the oldest clients, with a maximum age of 88 at entry and a maximum of 89 at expiry. However, advisers may question how useful these maximums are in practice, given that entry at 88 would provide just one year of cover. In terms of the highest ages cover can run to, AIG, Aviva and VitalityLife come out best with a maximum expiry age of 90
No insurer has a maximum age at entry below 77 – and many enable people well in to their 80s to take out a plan. So even plans operating at the lower end of the age scale are likely to be suitable for many businesses, ensuring that most clients will have a wide choice of provider.