There is a lot of talk in the protection industry at the moment about the UK’s “protection gap”.
It has been pushed firmly into the spotlight by the Financial Conduct Authority, which published the final report from its Pure Protection Market Study in September. The FCA found that 58% of adults do not hold any pure protection products, such as life insurance, critical illness cover or income protection. Of those without cover, 59% have never considered their protection needs.
Those are significant numbers, and understandably much of the conversation has focused on people who have no protection at all.
But there is another type of protection gap that receives less attention.
It is perfectly possible to have insurance policies in place, pay the premiums every month and still discover that the protection no longer matches the risks you actually face.
For a business, that distinction can be particularly important.
A policy is only part of the answer
When we first speak to a business owner, we don’t start with a list of products.
We want to understand the business.
Who owns it? Who makes the money? Who holds important customer relationships? Is there borrowing? How would the business be affected if a particular person couldn’t work? If one of the shareholders died, what would everyone actually want to happen next?
Only once you understand those things can you start deciding whether there is a financial risk worth protecting and, if there is, what an appropriate solution might look like.
It sounds obvious, but it is quite different from simply deciding that every company needs Key Person Protection, or that because another director you know has Shareholder Protection, you probably should too.
The policy should be the result of the conversation, not the starting point.
That principle is particularly relevant when almost half of SME owners have never sought advice about business protection, according to 2026 research from Scottish Widows. SWE
The business you protected might not exist anymore
There is another problem we see regularly.
A business did have the right conversation. It identified its risks, put appropriate protection in place and filed the paperwork away.
Then it carried on doing what businesses do.
It grew.
Perhaps turnover increased significantly. A new shareholder joined. The company borrowed money to fund an expansion. Someone who started as an employee became fundamental to its success. A director reduced their involvement. The company took on more staff or became increasingly dependent on a major customer.
None of those things automatically means existing protection is wrong.
But each can change the financial consequences of something happening to one of the people behind the business.
A £200,000 policy arranged several years ago doesn’t automatically become a £400,000 policy because the company has doubled in size.
The direct debit, however, will quite happily continue leaving the bank account.
That’s why reviewing existing arrangements matters just as much as putting them in place in the first place.
The amount of cover needs a reason too
This is where another form of under-protection can creep in.
Ask a business owner how much cover they have and they may know the answer immediately.
Ask why the figure is £250,000 rather than £150,000 or £500,000 and the answer can sometimes be less clear.
There should be some logic behind the number.
With Key Person Protection, for example, the financial impact could involve lost profit, recruitment costs or the time it takes a replacement to become fully effective. With Business Loan Protection, there is a specific financial liability to consider. Shareholder Protection introduces questions around the value of the shares and how ownership would be dealt with following a death or serious illness.
There are established ways of assessing these requirements. Scottish Widows, for example, provides advisers with separate business valuation, Key Person and protection calculation tools rather than treating the amount of cover as an arbitrary figure. SWE
The point isn’t that every business needs more cover.
Sometimes a proper review concludes that what is already in place remains perfectly appropriate.
That’s a good outcome.
More insurance isn’t the objective
This is perhaps the most important part of the current protection-gap conversation.
Closing a protection gap should not simply mean selling more policies.
The FCA itself acknowledges that determining somebody’s protection need is complicated. Individual circumstances, willingness to pay and other sources of financial resilience all matter. Its market study also found that the protection market generally delivers good outcomes for those who do hold these products, with a wide range of products available and high claims acceptance rates. FCA
For us, good business protection advice is about identifying a genuine financial risk and then deciding what, if anything, should be done about it.
Budget matters too.
If a business has £200 a month available for protection, there is little value in designing a £500-a-month solution and pretending affordability isn’t part of the conversation.
Instead, we’d want to understand the risks, establish the priorities and work out where that £200 can make the greatest difference.
Occasionally that process also results in us recommending that somebody doesn’t take out a policy they originally thought they needed.
That’s fine too.
So, is your business actually protected?
The FCA’s work has created an important national conversation about the millions of people who have never considered protection at all.
For business owners, there is another useful question to add to it.
Not simply:
“Do we have business protection?”
But:
“Does the protection we have still reflect the business we run today?”
If the company has changed considerably since the policies were arranged, if nobody can remember how the levels of cover were calculated, or if you’re simply not sure what would happen financially if a key person, shareholder or director was suddenly unable to work, those are sensible reasons to review things.
You might discover a gap.
You might discover everything is exactly where it needs to be.
Either way, you’ll know the protection has been built around the business you actually have, rather than the one you had several years ago.
And that’s a much more useful definition of being protected.
