Lack of life insurance would drive many small firms out of business if key workers were lost due to ill-health or death.
More than six out of 10 businesses confess they have little or no life cover for key staff, according to new research by insurer Scottish Widows.
The firm claims small businesses have no contingency plans for coping with the unexpected loss or absence of staff who contribute to profits.
The absence of a single worker could mean cutting the workforce in two, but 60% say they do not think they need life protection.
John Walker, chairman of the Federation of Small Businesses, said: “The loss, even temporarily, of a key staff member or other interruption is always going to hit the smallest firms the hardest. A single member of staff could be half your workforce. It is therefore vital that small businesses get their contingency plans in place now, not when trouble strikes.”
Just 6% of small businesses have financial protection to cover the death of key person while only 4% have protection for a key person suffering a critical illness.
Iain McGowan, of Scottish Widows, said: “Small businesses are the lifeblood of the UK economy making up 99% of the private sector. Even in these challenging economic times today’s entrepreneurs must be prepared for the financial impact that a critical illness or death of a key employee could have on their business.
“Businesses need to consider the key risks they face to all aspects of their operation. This includes planning for the very real risks their business could face from death, critical illness, or long term incapacity of a key employee or business owner. While small businesses receive assistance and advice when starting up, they also need help in taking a long term financial view of their business and planning for risks accordingly.
“This responsibility for further education and understanding sits with the industry, government and businesses themselves.”
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