Running a small business is often described as a balancing act. Owners are responsible for driving growth, managing employees, and protecting their assets — all while planning for the future. 

Yet one area that is frequently overlooked is life insurance. For many business owners, personal and business risks are closely intertwined, and a lack of planning can have significant consequences.

Here are the top five life insurance issues faced by small business owners — and why seeking tailored advice can make all the difference.

1. Inadequate Protection for Business Continuity 

   One of the biggest risks small business owners face is underestimating the role of life insurance in business continuity. If a partner or key person passes away unexpectedly, the business may face severe disruption. Without adequate insurance in place, remaining partners or family members may struggle to keep the business afloat, cover debts, or manage day-to-day operations.Why advice matters: A qualified adviser can help business owners calculate the true level of cover needed, factoring in debts, future income needs, and succession planning. This ensures the business can continue without creating unnecessary financial stress for families or employees.

2. Confusion Between Personal and Business Cover 

   Small business owners often blur the line between personal and business finances. While many have personal life insurance to protect their families, they may overlook the need for business-specific cover such as Key Person Insurance, Buy-Sell Agreements, or Business Expense Insurance. Each serves a unique purpose, from funding succession to covering operational costs if a key individual is unable to work. 

   Why advice matters: Professional advice helps owners separate personal and business needs. Advisers can recommend a blend of policies that ensures both the family and the business are safeguarded, preventing either from being left exposed in the event of illness, disability, or death.

3. Lack of Succession and Exit Planning 

   A common oversight is failing to link life insurance with succession planning. Many businesses rely heavily on one or two individuals, and without clear agreements in place, disputes can arise among partners, family members, or shareholders. For example, if one partner dies, surviving owners may be left negotiating with the deceased’s family over ownership stakes.Why advice matters: Advisers can help set up Buy-Sell Agreements funded by life insurance. This arrangement allows surviving owners to buy out the deceased partner’s share at a fair value, ensuring a smooth transition of ownership and minimising disruption to the business.

4. Rising Premiums and Cash Flow Pressures 

   Small business owners often operate with tight budgets. Even when they recognise the need for insurance, the rising cost of premiums can become a source of stress, leading some to reduce cover or cancel policies altogether. This leaves the business and family exposed to significant risk.Why advice matters: An adviser can explore cost-effective strategies, such as structuring premiums through the business, reviewing policy types, or staggering coverage to match cash flow. They can also ensure policies remain relevant, avoiding wasted money on unnecessary cover.

5. Outdated or Incomplete Policies 

   Many small business owners purchase life insurance early in their careers but fail to review it as their circumstances change. Business growth, debt restructuring, or new employees can all alter insurance needs. Without regular reviews, policies may no longer provide adequate protection.Why advice matters: Regular reviews with a trusted adviser ensure that policies evolve alongside the business. Adjustments can be made for new business loans, additional partners, or changes in valuation, keeping coverage current and effective.

The Bigger Picture: Why Advice Is Non-Negotiable

Life insurance for small business owners is far more complex than simply purchasing a policy online. The right cover requires careful consideration of ownership structures, tax implications, and succession strategies. Poorly structured insurance can create as many problems as it solves.

Professional advisers bring expertise in aligning personal and business protection, ensuring that owners, their families, and their employees are all safeguarded. They can help identify risks that may not be immediately obvious and design solutions tailored to the unique circumstances of each business.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)